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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1999
REGISTRATION NO. 333-78501
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
SARATOGA RESOURCES, INC.
(Exact name of registrant as specified in charter)
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DELAWARE 8741 76-0453392
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation) Classification)
</TABLE>
301 CONGRESS AVENUE -- SUITE 1550
AUSTIN, TEXAS 78701
(512) 478-5717
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------
THOMAS F. COOKE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SARATOGA RESOURCES, INC.
301 CONGRESS AVENUE -- SUITE 1550
AUSTIN, TEXAS 78701
(512) 478-5717
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
Copy to:
ROBERT L. LAWRENCE, ESQ.
KANE KESSLER, P.C.
1350 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
(212) 541-6222
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the mergers as described in
the Agreement and Plan of Merger described in the enclosed Proxy
Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SARATOGA RESOURCES, INC.
301 CONGRESS AVENUE -- SUITE 1550
AUSTIN, TEXAS 78701
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Saratoga Resources, Inc.
A Special Meeting of Stockholders of Saratoga Resources, Inc., a Delaware
corporation ("Saratoga"), will be held at 1350 Avenue of the Americas, 26th
Floor, New York, N.Y. 10019,
10:00 a.m. local time, on August 10, 1999, or any adjournment or postponement
thereof, for the following purposes:
Proposal 1 -- To elect 5 new members of Saratoga's board of
directors.
Proposal 2 -- To vote upon a proposal to amend the certificate
of incorporation of Saratoga to effect a 1 for 0.06493 reverse stock
split of the issued and outstanding common stock of Saratoga.
Proposal 3 -- To vote upon a proposal to amend the certificate
of incorporation to change the name of Saratoga Resources, Inc., to
OptiCare Health Systems, Inc.
Proposal 4 -- To vote upon a proposal to amend the certificate
of incorporation to require Saratoga to indemnify directors and
officers to the maximum extent permitted by law.
Proposal 5 -- To vote upon a proposal to adopt the Performance
Stock Program.
Proposal 6 -- To vote upon a proposal to adopt the Employee
Stock Purchase Plan.
To transact such other business as may properly come before
the meeting or any adjournment or postponement.
The purpose of proposals 1, 2, 3 and 5, is to enable Saratoga to carry out
mergers of OptiCare Eye Health Centers, Inc., a Connecticut corporation, and
PrimeVision Health, Inc., a Delaware corporation, into subsidiaries of
Saratoga. All the above-referenced proposals, if adopted at the meeting, will
only become effective when the mergers close.
Saratoga stockholders do not have to approve the mergers and are not being
asked to do so. However, if the Saratoga stockholders do not approve the name
change, reverse split, election of directors and Performance Stock Program, the
mergers will not be carried out.
The obligations of all parties to the mergers are subject to the
satisfaction or waiver of numerous conditions prior to the proposed closing
date. There is no assurance that such conditions will be satisfied or waived or
that the mergers will be completed.
THOMAS F. COOKE, CHAIRMAN AND CEO OF SARATOGA, OWNS MORE THAN 64% OF THE
OUTSTANDING COMMON STOCK OF SARATOGA AT THE PRESENT TIME. MR. COOKE INTENDS TO
VOTE ALL HIS SHARES IN FAVOR OF ALL THE PROPOSALS, AND SO THE APPROVAL OF THE
PROPOSALS IS PROBABLE.
The board of directors has fixed the close of business on July 22, 1999 as
the record date for the determination of the holders of common stock entitled
to notice of, and to vote at, the meeting or any adjournment or postponement.
Your attention is directed to the accompanying Proxy Statement/Prospectus.
A list of stockholders entitled to vote will be kept by Saratoga at 301
Congress Avenue, Suite 1550, Austin, Texas 78701, for ten days before the
meeting.
<PAGE>
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO ENSURE
YOUR REPRESENTATION AT THE MEETING, HOWEVER, WE URGE YOU TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER
ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED
A PROXY CARD.
By Order of the Board of Directors
Thomas F. Cooke,
Chairman and Chief Executive
Officer
Dated: July 22, 1999
ii
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TABLE OF CONTENTS
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PAGE
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS ................................................ i
SUMMARY .................................................................................. 2
RISK FACTORS ............................................................................. 8
If we default on the combined company's $37 million debt, the bank could foreclose on
any of our assets. .................................................................... 8
Prime, OptiCare and Saratoga have experienced recent historical and pro forma losses and
the combined company may incur further losses ......................................... 8
The stockholders of the combined company may be diluted if the combined company
issues stock to finance working capital, acquisitions or other needs .................. 8
The success of the combined company's business plan depends on its ability to handle
certain factors ....................................................................... 9
The combined company's success will depend, in part, on profitable managed care
contracts and capitated fee arrangements .............................................. 10
The combined company will be subject to extensive government regulation ................. 10
Healthcare cost containment and lower reimbursement trends may impair profits ........... 11
The success of the combined company will depend on key individuals ...................... 11
The combined company may suffer from the uncertainty of health care reform .............. 12
A write-off of intangible assets would adversely affect the combined company's results of
operations ............................................................................ 12
Enforceability concerns of important non-competition covenants .......................... 12
We are exposured to medical malpractice claims .......................................... 12
Delaware law and Saratoga's board's ability to issue preferred stock could deter takeover
bids even if those bids are in the stockholders' best interests ....................... 13
The combined company will be restricted by contract from paying dividends ............... 13
The combined company may be restricted under applicable state law from paying
dividends ............................................................................. 13
We have potential conflicts of interest from related party transactions ................. 13
The price of our common stock may be volatile ........................................... 14
We may not be able to list or maintain listing of our common stock, and penny stock rules
may apply to the sale of our common stock ............................................. 14
AVAILABLE INFORMATION .................................................................... 16
TRADEMARKS ............................................................................... 17
HISTORICAL MARKET PRICES OF SARATOGA COMMON STOCK AND
DIVIDEND POLICY ......................................................................... 18
SELECTED HISTORICAL FINANCIAL DATA--SARATOGA RESOURCES, INC. ............................. 19
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF OPTICARE EYE
HEALTH CENTERS, INC. .................................................................... 20
SELECTED HISTORICAL FINANCIAL DATA OF PRIME AND PRO FORMA
COMBINED FINANCIAL DATA OF THE COMBINED COMPANY ......................................... 21
COMPARATIVE PER SHARE INFORMATION ....................................................... 22
SPECIAL MEETING .......................................................................... 23
Date, Time and Place of Special Meeting ................................................. 23
Purpose ................................................................................. 23
Record Date and Outstanding Shares ...................................................... 23
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iii
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Quorum ................................................................................ 23
Required Vote ......................................................................... 23
Proxies ............................................................................... 24
Solicitation of Proxies; Expenses ..................................................... 24
PROPOSAL 1--DIRECTOR ELECTION PROPOSAL ................................................ 25
PROPOSAL 2--REVERSE SPLIT PROPOSAL .................................................... 26
PROPOSAL 3--NAME CHANGE PROPOSAL ...................................................... 29
PROPOSAL 4--INDEMNIFICATION PROPOSAL .................................................. 29
PROPOSAL 5--ADOPTION OF PERFORMANCE STOCK PROGRAM ..................................... 30
PROPOSAL 6--ADOPTION OF EMPLOYEE STOCK PURCHASE PLAN .................................. 35
DESCRIPTION OF THE MERGERS ............................................................. 37
Material Contacts and Board Deliberations ............................................. 37
Saratoga's Business Strategy and Reasons for the Mergers .............................. 39
Recommendation of Saratoga's Board of Directors ....................................... 41
OptiCare's Reasons for the Merger ..................................................... 41
Prime's Reasons for the Merger ........................................................ 42
Structure of the Mergers and Conversion of OptiCare and Prime Common Stock ............ 44
Exchange of OptiCare and Prime Stock Certificates for Saratoga Stock Certificates ..... 45
Material Federal Income Tax Consequences of the Mergers ............................... 45
Accounting Treatment of the Mergers ................................................... 46
Regulatory Filings and Approvals Required to Complete the Mergers ..................... 47
Stock Exchange Listing ................................................................ 47
Stockholders' Appraisal Rights ........................................................ 47
Board of Directors and Management of Saratoga Following the Mergers ................... 53
Operations after the Mergers .......................................................... 53
Disposal of Prime's Ophthalmology Operations .......................................... 53
Employment Agreements ................................................................. 53
Restrictions on Sales of Shares by Affiliates of Saratoga, OptiCare and Prime ......... 54
Disposition of Saratoga's Subsidiaries ................................................ 54
SUMMARY OF THE MERGER AGREEMENT ........................................................ 56
Representations and Warranties ........................................................ 56
Conduct of Business Before Completion of the Mergers .................................. 57
Additional Agreements ................................................................. 57
Conditions to Completion of the Mergers ............................................... 58
Treatment of OptiCare and Prime Stock Options and Warrants ............................ 60
Fractional Saratoga Shares ............................................................ 61
Termination of the Merger Agreement ................................................... 61
Extension, Waiver and Amendment of the Merger Agreement ............................... 62
RELATED AGREEMENTS ..................................................................... 62
Affiliate Agreements .................................................................. 62
Settlement Agreement .................................................................. 62
Lock-up Agreements .................................................................... 63
Treatment of Prime Class A Preferred Stock and Warrants ............................... 63
Amendment of Certain OptiCare Agreements .............................................. 64
New Credit Facility ................................................................... 65
INFORMATION ABOUT SARATOGA ............................................................. 65
Saratoga Management's Discussion and Analysis of Financial Condition and Results of
Operations .......................................................................... 65
</TABLE>
iv
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PAGE
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Business of Saratoga Prior to the Mergers ............................................ 67
Proposed Actions by Saratoga Prior to the Completion of the Mergers .................. 68
History of Saratoga's Business ....................................................... 68
Employees ............................................................................ 70
Description of Property .............................................................. 70
Certain Transactions ................................................................. 70
Executive Officers of Saratoga Prior to the Merger ................................... 70
Biographical Information ............................................................. 70
Compliance With Section 16(a) of the Exchange Act .................................... 71
Summary Compensation Table ........................................................... 71
Director Compensation ................................................................ 71
BUSINESS OF OPTICARE, PRIME AND THE COMBINED COMPANY .................................. 72
MANAGEMENT OF THE COMBINED COMPANY FOLLOWING CLOSING OF THE
MERGERS .............................................................................. 95
Directors ............................................................................ 95
Executive Officers of the Combined Company ........................................... 95
Committees of the Board of Directors ................................................. 95
Compensation of Directors And Executive Officers of The Combined Company After The
Mergers ............................................................................ 96
Security Ownership of Certain Beneficial Owners and Management ....................... 96
Employment Agreements for Certain Executive Officers ................................. 97
Certain Relationships and Related Transactions ....................................... 99
DESCRIPTION OF THE SARATOGA CAPITAL STOCK ............................................. 103
COMPARISON OF STOCKHOLDER RIGHTS ...................................................... 105
Comparison of OptiCare to Saratoga ................................................... 105
Comparison of Prime to Saratoga ...................................................... 114
INDEPENDENT AUDITORS .................................................................. 117
LEGAL MATTERS ......................................................................... 117
EXPERTS ............................................................................... 117
STOCKHOLDER PROPOSALS ................................................................. 118
INDEX TO FINANCIAL STATEMENTS ......................................................... F-1
ANNEX LIST
Annex A: Agreement and Plan of Merger
Annex B: Proposed Certificate of Amendment of the Certificate of Incorporation of
Saratoga
Annex C: Performance Stock Program
Annex D: Employee Stock Purchase Plan
</TABLE>
v
<PAGE>
PROXY STATEMENT/PROSPECTUS
-------------------------
SARATOGA RESOURCES, INC.
UP TO 8,800,000 SHARES OF COMMON STOCK
-------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 10, 1999
Saratoga Resources, Inc., a Delaware corporation, is furnishing this Proxy
Statement/Prospectus to its stockholders in connection with the solicitation by
the Saratoga board of directors of proxies for use at the special meeting of
stockholders to be held on August 10, 1999, and any adjournments or
postponements of the meeting (the "Special Meeting"). This Proxy
Statement/Prospectus describes the proposed mergers of OptiCare Eye Health
Centers, Inc., a Connecticut corporation, and PrimeVision Health, Inc., a
Delaware corporation, with separate wholly owned subsidiaries of Saratoga,
pursuant to an Agreement and Plan of Merger, dated as of April 12, 1999. The
purpose of the proposals set forth in the Notice of Special Meeting (except for
the indemnification proposal and the employee stock purchase plan proposal) is
to enable Saratoga to carry out the mergers. The proposals set forth in the
Notice of Special Meeting, if adopted at the meeting, will become effective
only when the mergers close. The obligations of Saratoga, Prime and OptiCare to
consummate the mergers are subject to the satisfaction or waiver of numerous
conditions prior to the proposed closing date. The approximate date of mailing
of this Proxy Statement/Prospectus is July 23, 1999.
This Proxy Statement/Prospectus serves as a prospectus under the
Securities Act of 1933, as amended, for the issuance of up to 8,800,000 shares
(after giving effect to the reverse split described in this statement) of
Saratoga common stock which will be issued at the effective time of the
mergers. Upon closing of the mergers, the stockholders of Saratoga, and the
former stockholders of Prime and OptiCare will hold approximately the following
percentages of common stock of Saratoga:
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Present Saratoga stockholders ......... 2.500%
Former Prime stockholders ............. 48.755%
Former OptiCare stockholders .......... 48.745%
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Total ................................ 100.000%
</TABLE>
Saratoga intends to apply for the listing of its common stock on the
American Stock Exchange, Inc. The listing on AMEX or NASDAQ is a condition
precedent of the mergers. Prior to the date of this Proxy Statement/Prospectus,
Saratoga common stock has traded over the counter and quotes are reported on
the OTC Bulletin Board operated by the National Association of Securities
Dealers. If the Saratoga common stock is not accepted for listing on either
AMEX or NASDAQ, the parties intend to have the Saratoga common stock continue
to be traded over the counter. On April 12, 1999, the last trading day before
the public announcement of the proposed mergers, the average of the closing bid
and asked price of Saratoga common stock was $0.56 (without giving effect to
adjustment for the proposed reverse split).
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. WE URGE THE STOCKHOLDERS TO READ AND CONSIDER CAREFULLY
THIS ENTIRE PROXY STATEMENT/PROSPECTUS, INCLUDING THE MATTERS REFERRED TO
BEGINNING ON PAGE 8 UNDER "RISK FACTORS".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE SARATOGA STOCK TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is July 23, 1999.
<PAGE>
SUMMARY
THE COMPANIES
Saratoga Resources, Inc.
301 Congress Avenue
Suite 1550
Austin, TX 78701
(512) 478-5717
Saratoga Resources, Inc., a Delaware corporation, operated as an energy
acquisition and development company until the liquidation of its oil- and
gas-producing properties in 1996. Since that time, management has sought new
business opportunities through acquisitions and through use of Saratoga's
database and expertise in the oil and gas business. In December 1998, Saratoga
Holdings I, Inc., a wholly owned subsidiary of Saratoga, acquired a portfolio
of consumer debt receivables at a deep discount and commenced a business of
acquiring, reselling, managing and collecting portfolios of delinquent and
defaulted accounts receivable.
OptiCare Eye Health Centers, Inc.
87 Grandview Avenue
Waterbury, CT 06708
(203) 596-2236
OptiCare Eye Health Centers, Inc., a Connecticut corporation, is
headquartered in Waterbury, Connecticut. OptiCare is a diversified eye health
services company that delivers a range of services to eye care professionals
and managed care plans. OptiCare has four business divisions, all located
primarily in Connecticut:
(i) ophthalmology services, which owns and operates eye health
centers and provides services to ophthalmologists in
Connecticut;
(ii) retail optometry, which owns and operates retail optometry
locations in Connecticut;
(iii) managed care, which contracts with managed care plans to
establish and manage networks of eye care providers to
render eye care services to persons covered by managed care
plans; and
(iv) ambulatory surgery centers, which provide outpatient
surgical services for eye-related diseases in three
facilities in Connecticut plus one refractive laser center.
PrimeVision Health, Inc.
First Union Capital Center
150 Fayetteville Street Mall
Suite 1000
Raleigh, NC 27601
(800) 784-7466
PrimeVision Health, Inc., a Delaware corporation, is a vision services
company incorporated in Delaware and headquartered in North Carolina. Prime is
involved in three vision-related lines of business: (1) managed vision care,
(2) buying group and distribution and (3) optometric practice management and
retail optical. In December 1998, the board of directors approved the disposal
of Prime's ophthalmology practice management division and related
administrative support functions while continuing the management of ambulatory
surgery centers in California, Kentucky and Indiana.
We refer to the "combined company" frequently in this Proxy
Statement/Prospectus. We use that term to refer to the business of Saratoga as
it will exist after the closing of the mergers with OptiCare and Prime. We
assume when we use that term that the mergers will occur.
2
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CONSEQUENCES OF THE MERGERS TO THE SARATOGA STOCKHOLDERS
As a result of the mergers, the stockholders of Saratoga will incur
substantial dilution in their aggregate ownership in the Combined Company. When
the mergers close, the stockholders of Saratoga immediately before the closing
will have a number of shares of Saratoga common stock, in the aggregate, which
will constitute approximately 2.5% of the total amount of Saratoga common stock
outstanding immediately after the closing. The stockholders of Saratoga will
not receive any shares or other consideration in connection with the mergers.
However, prior to the closing of the mergers, Saratoga intends to distribute
all of its shares of each of Saratoga Resources, Inc., a Texas corporation and
a subsidiary of Saratoga, and Saratoga Holdings I, Inc., a subsidiary of
Saratoga, to the existing stockholders of Saratoga. Inasmuch as the disposition
of the subsidiaries of Saratoga will occur prior to the mergers, the Prime and
OptiCare stockholders will not participate in any such distribution of the
stock. See "Description of the Mergers--Disposition of Saratoga's
Subsidiaries."
Saratoga stockholders are not entitled to appraisal rights in connection
with the mergers or the related proposals.
The Saratoga stockholders will not recognize gain or loss as a result of
the mergers. However, the receipt by a Saratoga stockholder of cash in lieu of
a fractional new share in connection with the reverse split will be a taxable
transaction for federal income tax purposes.
THE PROPOSALS AT THE SARATOGA SPECIAL MEETING.
The Saratoga stockholders will be asked to consider and vote upon the
following proposals:
Proposal 1 -- To elect five new members of Saratoga's board of directors.
Proposal 2 -- To vote upon a proposal to amend the certificate of
incorporation of Saratoga to effect a 1 for 0.06493 reverse stock
split of the issued and outstanding common stock of Saratoga;
Proposal 3 -- To vote upon a proposal to amend the certificate of
incorporation to change the name of Saratoga Resources, Inc., to
"OptiCare Health Systems, Inc.";
Proposal 4 -- To vote upon a proposal to amend the certificate of
incorporation to require Saratoga to indemnify directors and
officers to the maximum extent permitted by law;
Proposal 5 -- To vote upon a proposal to adopt the Performance Stock
Program; and
Proposal 6 -- To vote upon a proposal to adopt the Employee Stock Purchase
Plan.
The purpose of proposals 1, 2, 3 and 5 is to enable Saratoga to carry out
mergers of OptiCare and Prime with wholly owned subsidiaries of Saratoga. The
proposals, if adopted at the meeting, will become effective when the mergers
close.
Saratoga stockholders do not have to approve the mergers and are not being
asked to do so. However, if the Saratoga stockholders do not approve the
proposals, we will not do the mergers.
THOMAS F. COOKE, CHAIRMAN AND CEO OF SARATOGA, OWNS MORE THAN 64% OF THE
OUTSTANDING COMMON STOCK OF SARATOGA AT THE PRESENT TIME. MR. COOKE INTENDS TO
VOTE ALL HIS SHARES IN FAVOR OF ALL THE PROPOSALS.
REQUIRED VOTE
Election of directors -- plurality of votes.
Reverse split, name change and indemnification proposals -- absolute
majority of all outstanding common stock. Abstentions and broker non-votes are
the equivalent of a vote against these proposals.
3
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Performance Stock Program and Employee Stock Purchase Plan -- simple
majority of votes present at the meeting (including stockholders present in
person and by proxy).
THE MERGERS
The merger agreement is attached as Annex A to this Proxy
Statement/Prospectus. We encourage you to read the merger agreement, as it is
the legal document that governs the mergers.
Structure of the Mergers and Conversion of OptiCare and Prime Stock
Prime Shellco Merger Corporation, a newly-formed and wholly-owned
subsidiary of Saratoga, will be merged with and into Prime. Prime will survive
the merger as a subsidiary of Saratoga.
Thereafter, OptiCare Shellco Merger Corporation, a newly-formed and
wholly-owned subsidiary of Saratoga, will be merged with and into Opticare.
OptiCare will survive the merger as a subsidiary of Saratoga.
In the mergers, each outstanding share of OptiCare and Prime stock (other
than shares held by OptiCare, Prime and their subsidiaries) will be converted
into the right to receive Saratoga common stock, at the following ratios:
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Prime exchange ratio ............. 0.3134
OptiCare exchange ratio .......... 11.7364
</TABLE>
Upon closing of the mergers, the stockholders of Saratoga, Prime and
OptiCare immediately before the effective time will own approximately the
following percentages of common stock of the combined company:
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Pre-merger Saratoga stockholders ......... 2.500%
Former OptiCare stockholders ............. 48.745%
Former Prime stockholders ................ 48.755%
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Total .............................................. 100.00%
</TABLE>
The foregoing amounts have been calculated on a primary basis, after
giving effect to the reverse split and the mergers. See "Description of the
Mergers -- Structure of the Mergers and Conversion of OptiCare and Prime
Stock."
Material Federal Income Tax Consequences of the Mergers
The mergers are intended to be structured as "tax-free reorganizations"
for federal income tax purposes. Accordingly, holders of Prime and OptiCare
stock generally will not recognize any gain or loss for federal income tax
purposes on the exchange of their stock for Saratoga stock in the mergers,
except for any gain or loss recognized in connection with the receipt of cash
instead of a fractional share of Saratoga common stock. The companies
themselves, as well as holders of Saratoga stock, will not recognize gain or
loss as a result of the mergers.
The federal income tax consequences described above may not apply to some
stockholders of Saratoga, Prime and OptiCare. Your tax consequences will depend
upon your personal situation. You should consult your tax advisor for a full
understanding of the tax consequences of the mergers to you.
Our obligations to complete the mergers are not conditioned on the
delivery of an opinion regarding federal income tax consequences of the
mergers. Nevertheless, Saratoga will obtain an opinion from Deloitte & Touche
LLP regarding material federal income tax consequences of the mergers to the
stockholders of Saratoga as well as the tax treatment of the mergers to
Saratoga. Neither Prime nor OptiCare intends to obtain a tax opinion. We
understand that the mergers will
4
<PAGE>
have the federal income tax consequences discussed above. We cannot assure that
contrary positions will not be successfully asserted by the IRS or adopted by a
court if the issues are litigated. See "Description of the Mergers--Material
Federal Income Tax Consequences of the Mergers."
Listing of Saratoga Common Stock
Listing of the shares of Saratoga common stock to be issued in connection
with the mergers on either the American Stock Exchange or NASDAQ is a condition
to the mergers. Saratoga has applied for the listing of its securities on the
AMEX.
However, if the Saratoga common stock is not accepted for listing on
either AMEX or NASDAQ, the parties intend to have the Saratoga common stock
continue to be traded over the counter and reported on the OTC Bulletin Board.
Appraisal Rights
Saratoga. Saratoga stockholders are not entitled to appraisal rights in
connection with the mergers or the related proposals.
Prime. Prime stockholders are entitled to have the fair value of their
stock appraised by a court and paid to them in cash. To do this, the holders of
Prime common stock must follow these required procedures:
o Prime stockholders must deliver a written demand for appraisal to Prime
on or before the vote is taken at the Prime special meeting.
o Prime stockholders must not vote in favor of or abstain from voting on
the merger.
o Prime stockholders must hold such shares of Prime common stock from the
date of the making of the demand through the closing of the Prime merger.
If a Prime stockholder follows the required formalities, his/her shares
will not be converted into the right to receive Saratoga common stock in the
merger. Instead, such holder's only right will be to receive the appraised
value of his/her shares in cash as determined by a court.
OptiCare. Any OptiCare stockholder who objects to the OptiCare merger has
the right to be paid the fair value of his/her shares of OptiCare. Any OptiCare
stockholder who wishes to be paid the fair value of his/her shares must do BOTH
of the following:
(a) Deliver to OptiCare before the vote is taken on the OptiCare merger a
written notice of his/her intent to demand payment for the fair value of
his/her shares. (A vote against the OptiCare merger is NOT considered a
notice meeting this requirement)
(b) NOT vote in favor of the OptiCare merger. (An OptiCare stockholder who
returns a signed proxy which does not specify in the proxy a vote
"AGAINST" the OptiCare merger or an instruction to abstain has not
satisfied this requirement.)
The notice may be addressed to OptiCare's registered agent at its
registered office or to OptiCare or its Secretary at the following address:
OptiCare Eye Health Centers, Inc., 87 Grandview Avenue, Waterbury, CT 06708.
See "Description of the Mergers--Stockholders' Appraisal Rights."
Board of Directors following the Mergers
The merger agreement provides that the board of directors of the combined
company after the mergers will consist of 7 persons. Five of the directors will
be the following persons:
Allan L.M. Barker, O.D. (presently a director and officer of Prime)
John Croweak (presently a director of OptiCare)
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Steven L Ditman (presently a director and officer of OptiCare)
Martin E. Franklin (presently a director of Prime)
Dean J. Yimoyines, M.D. (presently a director and officer of OptiCare)
After the mergers, Dr. Barker and Mr. Franklin (who are presently
directors of Prime) will designate two other persons to be directors of the
combined company, so that the entire Saratoga board will be comprised of seven
members.
Interest of Officers and Directors in the Mergers
The Prime and OptiCare stockholders should be aware that a number of Prime
and OptiCare officers and directors may have interests in the mergers that may
be different from, or in addition to, theirs. See "Management of the Combined
Company Following Closing of the Mergers."
Accounting Treatment
The Prime merger has been accounted for as a reverse acquisition by Prime
of Saratoga at book value with no adjustments reflected to historical values.
Saratoga's acquisition of OptiCare has been accounted for under the purchase
method of accounting with the excess of purchase price over the estimated fair
value of net assets acquired being recorded as goodwill.
Conditions to Completion of the Mergers
The obligations of each of Saratoga, Prime and OptiCare to complete the
mergers and the other transactions contemplated by the merger agreement are
subject to the satisfaction, or waiver, of numerous conditions. To review the
conditions to completion of the mergers, see "Summary of the Merger
Agreement--Conditions to Completion of the Mergers."
Regulatory Approvals
The mergers are subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, which prevents certain transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and the appropriate waiting periods end or expire. The parties have
filed the required information and materials with the Department of Justice and
the Federal Trade Commission and early termination of the applicable waiting
period has been granted.
Other regulatory approvals include:
o consents to change of control with respect to two ambulatory surgical
centers in Connecticut;
o consents to change of control with respect to two HMO's in North Carolina
and Texas;
o compliance with applicable state securities laws.
Saratoga does not believe there are any other material governmental or
regulatory approval required for completion of the mergers, other than the
effectiveness of the registration statement of which this Prospectus/Proxy
Statement is a part, and compliance with applicable corporate law of Delaware
and Connecticut and various blue sky laws. See "Risk Factors--The combined
company will be subject to extensive government regulation" and "Description of
the Mergers--Regulatory Filings and Approvals Required to Complete the
Mergers."
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Reasons for the Mergers
The Prime board and OptiCare board believe that:
(i) the combination offers OptiCare and Prime stockholders the
opportunity to own a publicly traded stock;
(ii) OptiCare's and Prime's stockholders would participate in a bigger
company with enhanced scale and potential to leverage operating
infrastructure; and
(iii) OptiCare's management expertise will improve the profitability of
Prime.
Saratoga's board of directors wants to effect the mergers as a
continuation of its strategy of pursuing potential business opportunities and
preserving stockholder value. Saratoga's board of directors believes, after
three years of efforts to find other business opportunities, that the mergers,
as they have been structured, represent a reasonable opportunity for Saratoga
to utilize its assets for the benefit of its stockholders.
To review the reasons for the mergers in greater detail, see "Description
of the Mergers."
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RISK FACTORS
An investment in the shares of common stock of Saratoga, after closing of
the mergers with OptiCare and Prime (the "combined company"), involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Proxy
Statement/Prospectus, in connection with an investment in the common stock of
the combined company.
IF WE DEFAULT ON THE COMBINED COMPANY'S $37 MILLION DEBT, THE BANK COULD
FORECLOSE ON ANY OF OUR ASSETS.
Upon closing of the mergers and related transactions, the combined company
anticipates bank indebtedness of approximately $24 million and net equity of
approximately $4 million. Bank Austria AG, Prime's current lender, is working
with Prime to amend its existing credit agreement to provide a combination term
and revolving facility to the combined company. As of December 31, 1998 and
currently, Prime is in default of certain of its financial covenants and the
entire outstanding balance of its bank debt has been accordingly classified as
short-term. It is anticipated that the amended credit agreement will provide
for no maturities within one year. It is also anticipated that substantially
all of the combined company's assets will be pledged to secure this new debt
and certain financial covenants will be required. In addition to the
anticipated bank debt described above, the combined company will have
approximately $12 million of unsecured subordinated debt subject to market
interest rates. The resulting total indebtedness will therefore be
approximately $37 million.
In the event of default of its financial covenants, the bank could
foreclose on its security interest in the combined company's assets, which
would have a material adverse effect on the results and financial position of
the combined company. Furthermore, we cannot assure that the combined company's
debt to equity ratio will improve in the short-term.
PRIME, OPTICARE AND SARATOGA HAVE EXPERIENCED RECENT HISTORICAL AND PRO FORMA
LOSSES AND THE COMBINED COMPANY MAY INCUR FURTHER LOSSES.
For the three months ended March 31, 1999, Prime, OptiCare and Saratoga
recorded net income (loss) from continuing operations of $80,000, ($18,000) and
($92,000), respectively. On a pro forma combined basis, net income for the
three months ended March 31, 1999 was $134,000. Prime, OptiCare and Saratoga
experienced net losses from continuing operations for the year ended December
31, 1998 of $3.2 million, $0.5 million and $0.3 million, respectively. On a pro
forma combined basis, the net loss for the year ended December 31, 1998 was
$1.9 million. Although management believes that the combined company has a
viable business plan and potential for future earnings, management cannot
assure that the combined company will not incur further losses.
THE STOCKHOLDERS OF THE COMBINED COMPANY MAY BE DILUTED IF THE COMBINED COMPANY
ISSUES STOCK TO FINANCE WORKING CAPITAL, ACQUISITIONS OR OTHER NEEDS.
At the current time, the combined company believes that it can meet its
near term working capital needs from existing sources. However, the combined
company may in the future determine that additional funding may be required to
provide the combined company with funding to support its working capital and
other needs for capital. In particular, the combined company believes that
(a) if OptiCare and Prime succeed in integrating their businesses
and organizations, and
(b) if the combined company's profits grow in its first 12 months
after the closing of the mergers,
then other eye care companies may show an interest in joining the combined
company in a business combination. If that happens, the combined company may
want to issue common stock for one or more of the following purposes:
(a) to raise cash needed to make an acquisition;
(b) to raise cash needed for working capital of the combined company
and its new acquisition; and
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(c) to issue common stock to the owners of the company to be
acquired, either in lieu of or in addition to cash consideration.
We emphasize that we do not have any opportunities under consideration, and we
are not actively looking for such opportunities. However, we would not pass up
an appropriate opportunity if the combined company is presented with such
opportunity in the future.
THE SUCCESS OF THE COMBINED COMPANY'S BUSINESS PLAN DEPENDS ON ITS ABILITY TO
HANDLE CERTAIN FACTORS.
General. The combined company's business plan is to grow its managed care
business, improve the profitability of its ophthalmology business and expand
its buying group services and retail optometry operations. The success of the
combined company's business strategy will depend on factors which include the
following:
Managed Care Contract Expansion. The success of the combined company will
depend on its ability to maintain and expand its managed care contract
relationships with HMO's and other third party payors. To be successful in
managed care, the combined company must accurately assess its costs in
providing such services and negotiate pricing structures that are adequate to
support such costs and provide sufficient profit. The combined company will
also have to maintain and expand its network of eye care providers and retail
affiliations, so that it can service the patients covered by these managed care
contracts. See also, "The combined company's success will depend, in part, on
profitable managed care contracts and capitated fee arrangements," and "The
combined company will be subject to extensive government regulation."
Information Systems--General. Management of the combined company believes
that an asset of OptiCare has been its information systems, which OptiCare
believes are well-tailored to the requirements of eye care providers. However,
rapid changes in technology, obsolescence of existing systems, or the emergence
of competitors with superior information systems could prevent the combined
company in the future from maintaining this competitive edge.
Information Systems--Year 2000 Issue. The combined company is currently in
the process of modifying its information systems to be Year 2000 compliant. The
combined company expects its information systems to be Year 2000 compliant
within a sufficient amount of time to meet its needs. The combined company will
have to incur further expenses in connection with its effort to make these
modifications. While the combined company also expects to initiate
communications with significant suppliers, customers and other third parties
with which the combined company does business in an attempt to minimize the
potential disruption to the combined company's operations resulting from Year
2000 problems at such other places, there can be no assurances that the
computer systems of other companies would not have an adverse effect on the
combined company's operations.
Reliance on Eye Care Providers. The combined company's revenue depends in
part on revenue earned by the eye care providers who are its customers in its
ophthalmology services business. There can be no assurance that these providers
will continue to be successful, or that the agreements between the combined
company and these providers will not be terminated.
The combined company's ability to expand the managed care business will
depend upon its ability to recruit and maintain additional licensed
practitioners for its provider network, and to market such network successfully
to managed care plans and other third-party payors. The inability to
effectively expand the provider network or contractual relationships with
payors would have a material adverse effect on the combined company's business
strategy. Additionally, the fees earned by the combined company in its
ophthalmology services and managed care businesses will fluctuate depending on
variances in revenues and expenses of its providers, and thus the combined
company's revenue and profitability in connection with its agreements will be
directly and adversely affected by poor operating results of its provider
network.
Integration of Future Acquisitions. While the combined company's business
strategy does not currently anticipate any material business acquisitions, it
may find material acquisition opportunities which it may elect to pursue. If
the combined company does consummate any such acquisition, its
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financial results in the fiscal quarters immediately following a material
acquisition may be adversely impacted while the combined company integrates the
acquisition.
THE COMBINED COMPANY'S SUCCESS WILL DEPEND, IN PART, ON PROFITABLE MANAGED CARE
CONTRACTS AND CAPITATED FEE ARRANGEMENTS.
General. The combined company's managed care business has increased
significantly in 1998 and 1999. Management of the combined company believes
that the percentage of the population covered by managed care plans will grow,
and so the combined company's success will depend, in part, upon its ability to
negotiate profitable managed care contracts with HMO's, health insurance
companies and other third party payors under which eye care services will be
provided to patients on a risk-sharing or capitated basis. Most of the combined
company's managed care contracts are for one-year terms which automatically
renew unless terminated by either party on 60 days' notice.
Capitation Agreements and other Assumptions of Risk. Under some managed
care contracts, known as "capitation" contracts, the combined company (or any
other health care provider) accepts a fixed payment per member per month,
whether or not a member (i.e., a person covered by a managed care plan)
receives any services, but the combined company (or other health care provider)
is obligated to provide all necessary covered services to the patients covered
under the agreement. These contracts pass much of the risk of providing care
from the payor (i.e., an HMO, health insurer, employee welfare plan or
self-insured employer) to the provider. The growth of capitation contracts in
markets served by the combined company could result in less certainty with
respect to profitability and would require a higher level of actuarial acumen
in evaluating such contracts. The combined company does not know whether it
will be able to negotiate profitable arrangements on a capitated or other
risk-sharing basis. In addition, to the extent that patients or enrollees
covered by capitation contracts require, in the aggregate, more frequent or
extensive care than is anticipated, operating margins may be reduced and the
revenue derived from these contracts may be insufficient to cover the costs of
the services provided. Any such developments could have a material adverse
effect on the combined company's results of operations or financial condition.
See, also, "The combined company will be subject to extensive government
regulation."
THE COMBINED COMPANY WILL BE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION.
The federal and state governments extensively regulate the health care
business. The combined company's business will be subject to numerous federal
and state laws and regulations including:
o Corporate Practice of Optometry and Ophthalmology. The laws of many
states prohibit corporations that are not owned entirely by eye care
professionals from (i) employing eye care professionals, (ii) receiving
for their own account reimbursements from third party payors for health
care services rendered by licensed professionals, (iii) controlling
clinical decision-making, or (iv) engaging in other activities that are
deemed to constitute the practice of optometry and/or ophthalmology.
o Fee-Splitting and Anti-kickback Law. Federal and most state laws prohibit
the paying or receiving of any remuneration that is intended to induce
referrals for health care products or services and governing
"fee-splitting" by health care professionals.
o Advertising Restrictions. Many states, including Connecticut, prohibit
licensed eye care professionals from using advertising which includes any
name other than their own, or from advertising in any manner that is
likely to lead a person to believe that a non-licensed professional is
engaged in the delivery of eye care services.
o Insurance Licensure. Most states impose strict licensure requirements on
health insurance companies, HMO's and other companies that engage in the
business of insurance or pre-paid health care.
o Regulation of the Combined Company's HMO Subsidiaries. Two of the
combined company's subsidiaries are HMO's which are subject to extensive
regulation under the insurance laws of
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the states in which they are organized or operate, i.e., North Carolina
and Texas. In the last two years, these subsidiaries contributed to the
combined company's revenue, on a pro forma combined basis, an aggregate
of $12,189,000 (6.5%).
o Physician Incentive Plans. Medicare regulations impose certain disclosure
requirements on managed care networks that compensate providers in a
manner that is related to the volume of services provided to Medicare
patients (other than services personally provided by the provider).
o "Any Willing Provider" Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include
any qualified and credentialed provider who is willing to abide by the
terms of the network's contracts and/or prohibit termination of providers
without cause.
o Antitrust Laws. The combined company and its providers are subject to a
range of antitrust laws that prohibit anti-competitive conduct, including
price fixing, concerted refusals to deal and divisions of markets.
The laws described above have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation. They are enforced by
regulatory agencies that are vested with broad discretion in interpreting their
meaning. The combined company believes that its operations do not violate these
regulations. However, the combined company's agreements and activities have not
been examined by federal or state authorities under these laws and regulations.
There can be no assurance that review of the combined company's business
arrangements will not result in determinations that adversely affect the
combined company's operations or that certain material agreements between the
combined company and eye care providers or third-party payors will not be held
invalid and unenforceable. In addition, these laws and their interpretation
vary from state to state and are subject to change. The regulatory framework of
certain jurisdictions may limit the combined company's expansion into, or
ability to continue operations within, such jurisdictions if the combined
company is unable to modify its operational structure to conform with such
regulatory framework. Any limitation on the combined company's ability to
continue operating in the manner in which OptiCare and Prime have operated
prior to the mergers could have an adverse effect on the combined company. See
"Business of the Combined Company Following Closing of the Mergers--Government
Regulation."
HEALTHCARE COST CONTAINMENT AND LOWER REIMBURSEMENT TRENDS MAY IMPAIR PROFITS.
Significant portions of the revenues received by the combined company's
providers are derived from government-sponsored health care programs and
private third-party payors. The health care industry has experienced a trend
toward cost containment as government and private third-party payors seek to
impose lower reimbursement and utilization rates and negotiate reduced payment
schedules with service providers. Management of the combined company believes
that these trends may result in a reduction from historical levels in per
patient revenue received by the eye care providers. This in turn may put
pressure on the eye care providers--the combined company's customers, current
and prospective--to reduce their costs, which may compel them to negotiate a
lower fee structure from the combined company.
THE SUCCESS OF THE COMBINED COMPANY WILL DEPEND ON KEY INDIVIDUALS.
The success of the combined company depends upon the continued services of
Dean J. Yimoyines, M.D., who will be the chairman, president and chief
executive officer of the combined company. Dr. Yimoyines has practiced medicine
and held management roles in the eye care industry for over 25 years. As a
result, he has developed a national reputation for leadership within the eye
care industry which the combined company believes adds significant value both
to the combined company's reputation in the marketplace and its ability to
execute its business plan. In fact, Dr. Yimoyines reputation in the marketplace
was a feature that led Prime to solicit OptiCare as a potential merger partner.
Therefore, the combined company believes the loss of the services of Dr.
Yimoyines could have a material adverse effect on the combined company. The
combined company and Dr. Yimoyines will be parties to an employment agreement
which will become effective
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upon the closing of the mergers, will expire three years thereafter (subject to
certain early termination provisions), and will be renewable for subsequent
terms.
The combined company believes that its future success will also depend in
part upon its ability to attract and retain other qualified management
personnel. The combined company believes the proposed members of its executive
team bring significant eye care experience and operating skill to their
responsibilities and the departure of these individuals would be materially
harmful to the combined company. In addition, after the closing of the mergers,
the combined company will be recruiting additional management to round out its
leadership team. Competition for such personnel is intense, and the combined
company competes for qualified personnel with numerous other employers, some of
whom have greater financial and other resources than the combined company. The
combined company cannot assure that the combined company will be successful in
attracting and retaining such personnel.
THE COMBINED COMPANY MAY SUFFER FROM THE UNCERTAINTY OF HEALTH CARE REFORM.
There can be no assurance that the laws and regulations of the states in
which the combined company operates will not change or be interpreted in the
future either to restrict or adversely affect the combined company's
relationships with its eye care providers. Federal and state governments are
currently considering various types of health care initiatives and
comprehensive revisions to the health care and health insurance systems. Some
of the proposals under consideration, or others that may be introduced, could,
if adopted, have a material adverse effect on the combined company's financial
condition and results of operations. It is uncertain what legislative programs,
if any, will be adopted in the future, or what actions Congress or state
legislatures may take regarding health care reform proposals or legislation.
A WRITE-OFF OF INTANGIBLE ASSETS WOULD ADVERSELY AFFECT THE COMBINED COMPANY'S
RESULTS OF OPERATIONS.
The combined company's pro forma total assets include substantial
intangible assets in the form of goodwill and other intangibles. The intangible
asset value represents the excess of cost over the fair value of the separate
tangible net assets acquired in various transactions. There can be no assurance
that the value of such assets will ever be realized by the combined company.
These intangible assets are generally amortized on a straight-line method over
an expected useful life of 25 years. The combined company evaluates on a
regular basis whether events and circumstances have occurred that indicate that
all or a portion of the carrying amount of the asset may no longer be
recoverable, in which case an additional charge to earnings would become
necessary. Any determination requiring the write-off of a significant portion
of unamortized intangible assets would adversely affect the combined company's
results of operations and may result in defaults under the covenants or other
terms of its funding agreements. See "OptiCare Health Systems, Inc., Pro Forma
Combined Financial Statements."
ENFORCEABILITY CONCERNS OF IMPORTANT NON-COMPETITION COVENANTS.
The combined company generally requires the eye care providers (i.e., the
professional corporations, professional associations or partnerships wholly
owned by licensed professionals) who contract directly with the combined
company to require the licensed professionals with whom they have employment
agreements to agree not to compete with their employers or the combined company
for periods of and between one and five years after termination of their
employment. The enforceability of these non-compete covenants varies from state
to state and also varies based upon facts and circumstances in particular
cases.
WE ARE EXPOSED TO MEDICAL MALPRACTICE CLAIMS.
The combined company is exposed to direct medical malpractice liability by
its ownership and operation of ambulatory surgical centers. In addition, the
combined company is exposed to indirect medical malpractice liability risks on
account of its contractual relationships with eye care providers. Medical
malpractice claims, if successful, could be substantial and may exceed the
limits of the
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combined company's insurance coverages. Insurance against medical malpractice
can be expensive and from time to time is unavailable at any price. The
combined company is indemnified by its eye care providers under its service
agreements, but the ability of such eye care providers to pay such
indemnification is not assured.
Accordingly, the combined company may be materially adversely affected by
large medical malpractice judgements. The combined company believes it
maintains reasonable and customary levels of liability insurance coverage, but
we cannot be sure that a pending or future claim or claims will not exceed the
limits of insurance coverage or that such coverage will continue to be
available at acceptable costs and favorable terms.
DELAWARE LAW AND SARATOGA'S BOARD'S ABILITY TO ISSUE PREFERRED STOCK COULD
DETER TAKEOVER BIDS EVEN IF THOSE BIDS ARE IN THE STOCKHOLDERS' BEST INTERESTS.
In the last several years, a number of states have adopted laws designed
to make certain kinds of "unfriendly" corporate takeovers or other transactions
involving a corporation and one or more of its significant stockholders, more
difficult. Under Section 203 of the Delaware General Corporation Law, certain
"business combinations" by a Delaware corporation with "interested
stockholders" are subject to a three-year moratorium, unless specified
conditions are met.
Saratoga has 5,000,000 shares of authorized and unissued preferred stock,
none of which are presently outstanding or required or expected to be issued in
the mergers. The preferred stock could be issued to third parties selected by
management or used as the basis for a stockholders' rights plan, which could
have the effect of deterring potential acquirers. The ability of the Board of
Directors to establish the terms and provisions of different series of
preferred stock could discourage unsolicited takeover bids from third parties
even if those bids are in the stockholders' best interests.
THE COMBINED COMPANY WILL BE RESTRICTED BY CONTRACT FROM PAYING DIVIDENDS.
The combined company's credit facility is expected to place certain
restrictions on the future payment of dividends. Furthermore, the combined
company currently intends to retain all future earnings for the operation and
expansion of its business, and, accordingly, the combined company does not
anticipate that any dividends will be declared or paid for the foreseeable
future. Therefore, any return earned on an investment in Saratoga common stock
in the foreseeable future, if any, will most likely depend upon the
appreciation in the price of the Saratoga common stock. See "Combined Company
Management's Discussion and Analysis of Combined Pro Forma Financial Conditions
and Results of Operations--Liquidity."
THE COMBINED COMPANY MAY BE RESTRICTED UNDER APPLICABLE STATE LAW FROM PAYING
DIVIDENDS.
As noted above under "Government Regulation," two of the combined
company's subsidiaries are HMO's. They contributed an aggregate of $12,189,000
(6.5%) to the combined company's revenue in the last 2 years. Under applicable
state law (North Carolina and Texas), those HMO's may not pay dividends to the
combined company above certain minimum levels without the prior written
approval of the applicable state insurance departments. These restrictions may
delay or prevent the combined company from receiving cash from the earnings of
these subsidiaries.
WE HAVE POTENTIAL CONFLICTS OF INTEREST FROM RELATED PARTY TRANSACTIONS.
There are contractual agreements between the combined company and eye care
provider entities owned and controlled by several of the combined company's
officers, directors and key employees, which agreements could create the
potential for possible conflicts of interests for such individuals. Any future
transactions and agreements or modifications of current agreements between the
combined company and such individuals, other affiliates and their professional
associations will be approved by a majority of the combined company's
independent directors and will be on terms no less favorable to the combined
company than those that could be obtained from unaffiliated parties. See
"Management of the Combined Company Following Closing of the Mergers--Certain
Relationships and Related Transactions."
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THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The market price of the common stock could be subject to significant
fluctuations in response to variations in financial results or announcements of
material events by the combined company or its competitors. Quarterly operating
results of the combined company, changes in general conditions in the economy
or the health care industry, or other developments affecting the combined
company or its competitors, could cause the market price of the common stock to
fluctuate substantially. The equity markets have on occasion experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities, and sometimes such fluctuations have been
unrelated to the operating performance of these companies. Concern about the
potential effects of health care reform and regulatory measures has contributed
to the volatility of stock prices of companies in health care and related
industries and may similarly affect the price of the combined company's common
stock
WE MAY NOT BE ABLE TO LIST OR MAINTAIN LISTING OF OUR COMMON STOCK, AND PENNY
STOCK RULES MAY APPLY TO THE SALE OF OUR COMMON STOCK.
Saratoga intends to apply for the listing of the combined company's common
stock on the American Stock Exchange, Inc. ("AMEX"). We cannot guarantee that
the combined company's common stock will be listed on the AMEX, or that, once
listed, it will always be listed. The AMEX rules for continual listing include
the following:
(a) stockholders' equity requirements, which the combined company
may not meet if it experiences losses; and
(b) market value requirements, which the combined company may not
meet if the price of the common stock declines.
If the combined company's common stock is not listed on the AMEX, or if,
once listed, it is then delisted from the AMEX, trading in the combined
company's common stock would be conducted, if at all, in the over-the-counter
market. This would make it more difficult for stockholders to dispose of their
common stock and more difficult to obtain accurate quotations on the combined
company's common stock. This could have an adverse effect on the price of the
common stock. There are separate rules regulating broker-dealers who trade on
behalf of customers in unlisted stocks. These rules require the following:
(a) broker-dealers may sell the common stock only to established
customers and accredited investors (generally defined as
investors with a net worth in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with a spouse);
(b) broker-dealers must make special suitability determinations
about the purchasers; and
(c) broker-dealers must receive the purchaser's written consent to
the transaction prior to sale.
The effect of these requirements may be to limit the ability or incentive
of broker-dealers to sell the combined company's common stock, and that in turn
diminishes the ability of stockholders to sell their common stock in the
secondary market. See "Description of the Saratoga Capital Stock."
The Securities and Exchange Commission has adopted regulations that define
"penny stock" to include common stock that has a market price of less than
$5.00 per share, subject to certain exceptions. These rules include the
following requirements:
(a) Broker-dealers must deliver, prior to the transaction, a
disclosure schedule prepared by the SEC relating to the penny
stock market.
(b) Broker-dealers must disclose the commissions payable to the
broker-dealer and its registered representative.
(c) Broker-dealers must disclose current quotations for the
securities.
(d) If a broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control
over the market.
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(e) Finally, the broker-dealer must furnish its customers with
monthly statements disclosing recent price information for all
penny stocks held in the customer's account and information on
the limited market in penny stocks.
Many securities listed on the AMEX would be covered by the definition of
penny stock, but transactions in a security listed on the AMEX are exempt from
such rules (except the "sole market-maker" provision mentioned in point (d)
above) if:
(a) the issuer has $2,000,000 in tangible assets,
(b) the customer is an institutional accredited investor, and
(c) the transaction is not recommended by the broker-dealer.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to
the penny stock rules.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus and certain information provided
periodically in writing and orally by Saratoga's designated officers and agents
contain statements which constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words "expect," "believe," "goal," "plan,"
"intend," "estimate," and similar expressions and variations thereof used in
this Proxy Statement/Prospectus are intended to specifically identify
forward-looking statements. Those statements appear in a number of places in
this Proxy Statement/Prospectus, particularly in the Management's Discussions
and Analyses of Financial Condition and Results of Operations and Reasons for
the Mergers, and include statements regarding the intent, belief or current
expectations of the combined company, its directors or its officers with
respect to, among other things:
o the financial prospects of the combined company;
o the ability of the combined company to efficiently and effectively
manage its existing business and grow its business profitably;
o the combined company's financing plans, including the combined company's
ability to raise additional debt and equity capital;
o trends affecting the combined company's financial condition and results
of operations, including the stock price of the combined company and its
potential impact on the number of shares utilized in acquisitions and on
future earnings per share;
o the combined company's growth strategy and operating strategy;
o the impact of current and future governmental regulations;
o the combined company's current and future managed care contracts; and
o the combined company's ability to continue to recruit eye care providers
and to maintain satisfactory business relationships with its network of
eye care providers.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
factors that might cause such differences include, among others, the following:
o the combined company's experiencing future operating and net losses;
o any material inability of the combined company to successfully integrate
and profitably operate OptiCare and Prime;
o any material inability of the combined company to obtain sufficient
capital and financing to fund its business strategy and operations;
15
<PAGE>
o the inability of the combined company to expand its managed care
business, renew existing managed care contracts at profitable price
structures and maintain and expand its network of eye care providers;
o changes in state and/or federal governmental regulations which could
materially affect the combined company's ability to operate or materially
affect the combined company's profitability;
o the inability of the combined company to maintain or obtain required
licensure in the states in which it operates and in the states in which
it may seek to operate in the future;
o the combined company's inability to meet its financing covenants and
commitments.
The combined company undertakes no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances after the date of
this Proxy Statement/Prospectus or to reflect the occurrence of unanticipated
events.
The risk factors set forth above should be read in light of the above
explanation of the uncertainties of forward-looking statements.
AVAILABLE INFORMATION
Saratoga is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission. Reports, proxy statements and other
information filed by Saratoga with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission, at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Midwest Regional Office: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
Northeast Regional Office: 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web at http: //www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants, including Saratoga, that file electronically with the Commission.
Saratoga has filed with the Commission a Registration Statement on Form
S-4 (herein, together with all amendments and exhibits, the "Registration
Statement") under the Securities Act with the Commission covering the Saratoga
common stock to be issued pursuant to the merger agreement. As permitted by the
rules and regulations of the Commission, this Proxy Statement/Prospectus does
not contain all information set forth in the Registration Statement and
exhibits thereto, all of which are available for inspection at the offices of
the Commission at the addresses set forth above. For further information,
please refer to the Registration Statement, including the exhibits thereto.
Statements contained in this Proxy Statement/Prospectus relating to the
contents of any contract or other document referred to herein are not
necessarily complete, and reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
No person has been authorized to give any information or to make any
representation not contained in, or incorporated by reference in, this Proxy
Statement/Prospectus, and, if given or made, such information or representation
should not be relied upon as having been authorized. The delivery of this Proxy
Statement/Prospectus to any person does not constitute an offer to sell, or the
solicitation of an offer to purchase, the securities offered hereby or a
solicitation of a proxy in any jurisdiction where such offer or solicitation
would be unlawful. Neither the delivery of this Proxy Statement/Prospectus nor
the issuance of any securities hereunder shall under any circumstances create
any implication that there has been no change in the information regarding
Saratoga set forth herein since the date hereof or incorporated by reference
since the date hereof.
16
<PAGE>
TRADEMARKS
This Proxy Statement/Prospectus contains reference to trademarks or
service marks of OptiCare and Prime and may contain references to trademarks or
service marks of others.
17
<PAGE>
HISTORICAL MARKET PRICES OF SARATOGA COMMON STOCK
AND DIVIDEND POLICY
You should evaluate the following information about the historical market
prices of the Saratoga common stock in light of the material and substantial
qualitative change in the business of Saratoga if the mergers are closed.
Saratoga's common stock has not, prior to the date hereof, been listed on
any stock exchange but from time to time has been reported by the NASD on the
OTC Bulletin Board under the symbol "SRIK". The range of high and low bid
information for the shares of Saratoga's common stock for the last two complete
fiscal years, and for each quarter of 1999 through [[LAST DAY BEFORE DATE OF
PROXY STATEMENT/PROSPECTUS]] as reported by the National Quotation Bureau, is
set forth below. Such quotations represent prices between dealers, do not
include retail markup, markdown or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter ....................... $ 0.281 $ 0.094
Second Quarter ...................... 0.219 0.094
Third Quarter ....................... 0.219 0.094
Fourth Quarter ...................... 1.125 0.063
YEAR ENDED DECEMBER 31, 1998
First Quarter ....................... 0.188 0.188
Second Quarter ...................... 1.125 0.188
Third Quarter ....................... 0.25 0.25
Fourth Quarter ...................... 0.25 0.063
YEAR BEGINNING JANUARY 1, 1999
First Quarter ....................... 0.063 0.063
Second Quarter (through ) ......... [ ] [ ]
</TABLE>
The foregoing quotations have not been adjusted to give effect to the
proposed 1 for 0.06493 Reverse Split. As of June 21, 1999, 3,465,292 shares of
Saratoga's common stock (without adjustment for the Reverse Split) were issued
and outstanding and held by approximately 1,350 holders of record.
Saratoga has never paid cash dividends. The Saratoga board of directors
will make future determinations about the payment of dividends on the common
stock, and will depend upon the combined company's operating results, financial
condition, capital requirements, restrictions imposed by lenders and such other
factors as the board of directors of the combined company considers relevant.
The combined company currently does not intend to pay any cash dividends on the
common stock. The combined company currently intends to retain any earnings for
working capital, repayment of indebtedness, capital expenditures and general
corporate purposes. In addition, the combined company's credit facility will
contain restrictions on the combined company's ability to pay dividends or make
other distributions. See "Risk Factors" and "Combined Company Management's
Discussion and Analysis of Pro Forma Combined Financial Condition and Results
of Operations."
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--SARATOGA RESOURCES, INC.
The following historical financial data is taken from Saratoga's financial
statements, which are included in this Proxy Statement/Prospectus beginning at
page F-3. This information should be evaluated in light of Saratoga's being in
a period of transition, in which management is seeking to develop new
businesses that will ultimately generate earnings and otherwise enhance
stockholder value. If the mergers are consummated, Saratoga will thereafter be
engaged in a completely different business.
(In thousands, except per share data)
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR
QUARTERS ENDED MARCH YEARS ENDED DECEMBER
31, 31,
---------------------- ---------------------
1999 1998(1) 1998 1997
---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operations Data:
Revenue ........................................ $ 1 $ 28 $ 39 $ 35
Net loss ....................................... (92) (69) (324) (118)
Basic and diluted loss per share ............... (0.03) (0.02) (0.09) (0.03)
Balance Sheet Data: (1)
Total current assets ........................... 212 311 666
Equipment, net of accumulated depreciation ..... 34 36 44
------- ------- -------
Total assets ................................... 246 347 710
======= ======= =======
Total current liabilities ...................... 6 15 22
Long-term debt, net of current portion ......... 14 16 21
Total stockholders' equity .................. 226 316 667
------- ------- -------
Total liabilities and stockholders' equity ..... $ 246 $ 347 $ 710
======= ======= =======
Shares outstanding ............................. 3,465 3,465 3,465
</TABLE>
- ----------
(1) Balance sheet data for March 31, 1998 is not reported.
19
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF
OPTICARE EYE HEALTH CENTERS, INC.
The following table sets forth certain combined financial information of
OptiCare at the dates and for the periods indicated. The combined financial
information for the three-month periods ended March 31, 1999 and 1998 has not
been audited, but in the opinion of management of OptiCare all adjustments
necessary for a fair presentation have been included. All such adjustments are
of a normal, recurring nature. The results of operations for the three months
ended March 31, 1999 are not necessarily indicative of the results of
operations that may be expected for the entire year. The selected combined
financial information as of and for the years ended December 31, 1994 through
1998 have been derived from the historical combined financial statements of
OptiCare. This information should be read in conjunction with OptiCare's
combined financial statements and notes thereto which are included in this
Proxy Statement/Prospectus (see Index to Financial Statements, beginning at
page F-1).
(Dollars in Thousands)
<TABLE>
<CAPTION>
AS OF AND FOR THE
QUARTERS ENDED MARCH
31, AS OF AND FOR YEARS ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1999 1998(2) 1998 1997 1996 1995 1994
---------- --------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue ....................... $11,056 $7,731 $34,745 $27,242 $24,720 $17,832 $15,885
Net income (loss) ................. (18) (52) (502) 327 143 (870) 760
Balance Sheet Data: (2)
Total current assets .............. 10,769 10,197 10,927 6,252 4,839 3,897
Property and equipment, net ....... 6,050 5,766 3,434 2,488 1,673 1,115
Total assets ...................... 20,348 19,515 15,049 8,958 6,781 5,197
Total current liabilities ......... 7,825 6,880 2,928 2,634 2,505 2,562
Long-term liabilities ............. 1,042 1,135 169 38 53 2,501
Total stockholders' equity (1) 11,481 11,500 11,952 6,285 4,224 135
Total liabilities and
stockholders' equity ............ $20,348 $19,515 $15,049 $ 8,958 $ 6,781 $ 5,197
</TABLE>
- ----------
(1) During 1995 and 1997, OptiCare entered into stock purchase agreements
whereby OptiCare sold 51,900 and 64,048 shares of stock for $5.2 million
and $6.0 million in cash, respectively. During 1996, OptiCare issued
20,494 shares of stock for $1.7 million in cash related to the exercise
of warrants.
(2) Balance sheet data for March 31, 1998 is not reported.
20
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF PRIME
AND PRO FORMA COMBINED FINANCIAL DATA OF THE COMBINED COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data of Prime has been derived
from the audited historical financial statements of Prime as of and for the
years ended December 31, 1998, 1997, 1996 and 1995 included herein. Prior to
1995, Prime did not exist.
The following selected pro forma combined financial data of the combined
company has been derived from the audited financial statements of Prime,
Saratoga and OptiCare and gives effect to the mergers and related transactions
upon which the mergers are conditioned.
The Prime merger has been accounted for as a reverse acquisition by Prime
of Saratoga at book value with no adjustments reflected to historical values,
resulting in Prime being the acquirer for accounting purposes. The acquisition
of OptiCare by Saratoga has been accounted for under the purchase method of
accounting with the excess of purchase price over the estimated fair value of
net assets acquired being recorded as goodwill.
No dividends have been declared or paid during the periods presented other
than preferred stock dividends.
The following information should be read in conjunction with Prime's
audited financial statements and notes thereto and Saratoga's pro forma
combined financial statements and notes thereto which are included in this
Proxy Statement/Prospectus (see Index to Financial Statements, beginning on
F-1).
<TABLE>
<CAPTION>
AS OF AND FOR THE
QUARTERS ENDED MARCH 31,
------------------------------------
PRO FORMA HISTORICAL
----------- ------------------------
1999 1999 1998(1)
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Statement of Operations Data:
Net revenue ......................... $ 29,152 $ 18,096 $17,122
Net income (loss) from
continuing operations ............. 134 126 (50)
Weighted average shares
outstanding ....................... 9,308 7,410 6,947
Net income (loss) from
continuing operations per share $ 0.01 $ 0.01 $ (0.01)
Balance Sheet Data: (1)
Investment in discontinued
operations ........................ -- $ 5,906
Total current assets ................ $ 20,635 19,011
Property and equipment, net ......... 10,500 4,450
Total assets ........................ 62,570 28,359
Total current liabilities ........... 22,193 52,957
Long-term debt and other
long-term liabilities ............. 36,021 812
Mandatorily redeemable
preferred stock ................... -- 9,800
Total stockholders' equity
(deficit) ......................... 4,355 (35,210)
Shares outstanding .................. 9,308 7,410
<CAPTION>
AS OF AND FOR YEARS ENDED DECEMBER 31,
--------------------------------------------------------
HISTORICAL
---------------------------------------------
PRO FORMA
1998(1) 1998 1997 1996 1995
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue ......................... $ 99,357 $ 64,612 $ 58,346 $52,157 $38,523
Net income (loss) from
continuing operations ............. (1,892) (3,239) (2,034) (767) (391)
Weighted average shares
outstanding ....................... 9,308 7,191 5,914 2,210 --
Net income (loss) from
continuing operations per share $ (0.20) $ (0.80) $ (0.34) $ (0.35) $ --
Balance Sheet Data: (1)
Investment in discontinued
operations ........................ $ 5,582 $ 69,473 $13,845 --
Total current assets ................ 20,237 18,274 20,306 $ 5,315
Property and equipment, net ......... 4,510 4,825 4,012 4,496
Total assets ........................ 26,557 86,397 26,296 11,873
Total current liabilities ........... 51,198 8,289 4,138 2,941
Long-term debt and other
long-term liabilities ............. 849 73,562 17,475 22,105
Mandatorily redeemable
preferred stock ................... 9,200 -- -- 40
Total stockholders' equity
(deficit) ......................... (34,690) 4,546 4,683 $23,036
Shares outstanding .................. 7,410 6,916 3,166 1,841
</TABLE>
- ----------
(1) Balance sheet data for March 31, 1998 is not reported. Pro forma balance
sheet data for December 31, 1998 is not reported.
21
<PAGE>
SARATOGA RESOURCES INC.
COMPARATIVE PER SHARE INFORMATION
The following represents per share information for Saratoga on a pro forma
combined and historical basis and equivalent per share information for both pro
forma combined and historcial amounts. The equivalents presented are calculated
by dividing the historical amounts by the reverse split exchange ratio of
Saratoga shares of 0.06493.
<TABLE>
<CAPTION>
AS OF AND FOR THE
QUARTERS AS OF AND FOR THE YEARS
ENDED MARCH 31, ENDED DECEMBER 31,
------------------------- -------------------------
1999 1998(1) 1998 1997(2)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
HISTORICAL:
Basic and diluted loss from continuing operations per
share .............................................. $ (0.03) $(0.02) $ (0.09) $ (0.03)
Book value per share ................................ $ 0.07 0.09 $ 0.19
PER SHARE EQUIVALENT PRO FORMA
COMBINED (after proposed reverse stock split):
Basic and diluted loss from continuing operations per
share .............................................. $ 0.01 $ (0.20)
Book value per share ................................ $ 0.47
PER SHARE EQUIVALENT HISTORICAL
(after proposed reverse stock split):
Basic and diluted loss from continuing operations per
share .............................................. $ (0.46) $(0.31) $ (1.39) $ (0.46)
Book value per share ................................ $ 1.08 $ 1.39 $ 2.93
</TABLE>
- ----------
(1) Balance sheet data for March 31, 1998 is not reported. Pro forma income
statement data for the quarter ended March 31, 1998 is not reported.
(2) Pro forma data as of and for the year ended December 31, 1997 is not
reported.
22
<PAGE>
SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting of Saratoga stockholders will be held at 2:00 P.M.,
local time, on August 10, 1999, at 1350 Avenue of Americas, 26th Floor, New
York, N.Y. 10019.
PURPOSE
The Saratoga stockholders will be asked to consider and vote upon
resolutions to adopt the following proposals:
Proposal 1 -- To elect five new members of Saratoga's board of
directors.
Proposal 2 -- To vote upon a proposal to amend the certificate of
incorporation of Saratoga to effect a 1 for 0.06493 reverse
stock split of the issued and outstanding common stock of
Saratoga.
Proposal 3 -- To vote upon a proposal to amend the certificate of
incorporation to change the name of Saratoga Resources,
Inc., to "OptiCare Health Systems, Inc."
Proposal 4 -- To vote upon a proposal to amend the certificate of
incorporation to require Saratoga to indemnify directors and
officers to the maximum extent permitted by law.
Proposal 5 -- To vote upon a proposal to adopt the Performance Stock
Program.
Proposal 6 -- To vote upon a proposal to adopt the Employee Stock
Purchase Plan.
The foregoing proposals, if adopted at the meeting, will become effective
only upon closing of the mergers. The purpose of proposals 1, 2, 3 and 5 is to
enable Saratoga to carry out mergers of OptiCare and Prime into wholly-owned
subsidiaries of Saratoga.
Saratoga stockholders do not have to approve the mergers and are not being
asked to do so. However, if the Saratoga stockholders do not approve the
amendments to the certificate of incorporation to effect the name change and
reverse split, adopt the Performance Stock Program and elect five new
directors, the mergers would not be carried out.
RECORD DATE AND OUTSTANDING SHARES
The Saratoga board of directors has fixed the close of business on July
22, 1999, as the record date for determining stockholders entitled to notice of
and to vote at the Special Meeting. As of the record date, there were
approximately 1,350 stockholders of record of Saratoga common stock and
3,465,292 shares (without adjustment for the reverse split) of Saratoga common
stock outstanding and entitled to vote, with each share entitled to one vote.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the votes entitled to be cast at the Special Meeting is necessary
to constitute a quorum. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Mr. Cooke has agreed to attend the meeting, and so a quorum is
probable.
REQUIRED VOTE
Pursuant to the Delaware General Corporation Law, an affirmative vote of
the holders of a majority of the outstanding shares of Saratoga common stock
entitled to vote at the Special Meeting is required for the adoption of the
amendments to Saratoga's certificate of incorporation contemplated by each of
the reverse split proposal, name change proposal and indemnification proposal
to be presented at the Special Meeting. Abstentions and broker non-votes will
have the legal effect of a vote against those proposals.
23
<PAGE>
For the election of directors, a plurality of the votes cast by the
holders of Saratoga common stock present in person or by proxy at the Special
Meeting is required for the election of the nominees for directors.
Pursuant to the Delaware General Corporation Law, an affirmative vote of
the holders of a majority of the shares of Saratoga common stock present in
person or represented by proxy at the Special Meeting and entitled to vote, is
required for the approval and adoption of each of the Performance Stock Program
and the Employee Stock Purchase Plan. Abstentions will have the legal effect of
a vote against the Program Proposal and the Purchase Plan Proposal. With
respect to a broker non-vote on the Program Proposal and the Purchase Plan
Proposal, such shares will not be considered present at the Special Meeting,
and, since they will not be counted in the voting with respect to such matter,
will have the practical effect of reducing the number of affirmative votes
necessary to achieve the required majority vote by reducing the total number of
shares from which the majority is calculated.
Mr. Cooke intends to vote his shares, constituting more than 64% of the
Saratoga common stock outstanding prior to the effective time of the mergers,
in favor of all of the proposals and so approval of each of the proposals is
probable.
All of the proposals will become effective only when the mergers close.
PROXIES
All shares of common stock represented at the Special Meeting either in
person or by properly executed proxies received prior to or at the Special
Meeting and not duly and timely revoked will be voted at the Special Meeting in
accordance with the instructions in such proxies. If no such instructions are
indicated, such shares will be voted in favor of all the proposals and, in the
discretion of the proxy holder as to any other matter which may be incidental
to the Special Meeting as may properly come before such meeting. Saratoga knows
of no other matters other than as described in the Notice of Special Meeting
that are to come before the Special Meeting. If any other matter or matters are
properly presented for action at the Special Meeting, the persons named in the
enclosed form of proxy and acting thereunder will have the discretion to vote
on such matters in accordance with their best judgment, including any
adjournment or postponement of the Special Meeting, unless such authorization
is withheld.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by: (i) giving written notice thereof to the Secretary of Saratoga at
or prior to the taking of the vote at the Special Meeting; (ii) signing and
returning to Saratoga a later dated proxy prior to the taking of the vote; or
(iii) voting in person at the Special Meeting; however, mere attendance at the
Special Meeting will not itself have the effect of revoking the proxy.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Saratoga stockholders will be borne
equally by OptiCare and Prime. In addition, they may reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses
in forwarding solicitation materials to such beneficial owners.
24
<PAGE>
PROPOSAL 1--DIRECTOR ELECTION PROPOSAL
At the Special Meeting, five (5) directors are to be elected to hold
office commencing upon the closing of the mergers. After the mergers, Allan
L.M. Barker and Martin E. Franklin (who are two of the designees of Prime to
the combined company board of directors), will designate two more directors, so
that the entire board will be comprised of seven members. Three of the expected
Board members will be designated by OptiCare, and four will be designated by
Prime. None of the nominees currently serves as a director of Saratoga.
Nominees receiving a plurality of the votes cast at the Special Meeting will be
elected. If the mergers are not consummated, none of these nominees will serve
as directors of Saratoga. The new directors of the combined company, their
ages, and the positions they will hold if the mergers close, are as follows:
<TABLE>
<CAPTION>
NAME AGE EXPECTED POSITIONS WITH THE COMBINED COMPANY AFTER MERGERS
- ----------------------------------- ----- -----------------------------------------------------------
<S> <C> <C>
Dean J. Yimoyines, M.D. ........... 51 Chairman of the Board of Directors, President and
Chief Executive Officer
Steven L. Ditman .................. 44 Executive Vice President, Chief Financial Officer and
Director
Allan L. M. Barker, O.D. .......... 51 President of the Buying Group Division and Director
Martin E. Franklin ................ 34 Director
John F. Croweak ................... 63 Director
</TABLE>
Dr. Yimoyines is a founder of OptiCare Eye Health Centers, Inc. He is
presently Chairman, President, and Chief Executive Officer of OptiCare, titles
he has held since 1985. Dr. Yimoyines has been instrumental in the development
and implementation of OptiCare's business for nearly twenty years. He graduated
with distinction from the George Washington School of Medicine. He completed
his ophthalmology residency at the Massachusetts Eye and Ear Infirmary, Harvard
Medical School. He completed fellowship training in vitreoretinal surgery at
the Retina Associates in Boston. Dr. Yimoyines is a graduate of the OPM
(Owner/President Management) program at Harvard Business School and a Fellow of
the American Academy of Ophthalmology.
Mr. Ditman has served as a director of OptiCare since July 1989. He became
the Chief Financial Officer and Treasurer in March, 1992. Mr. Ditman has served
as Chief Operating Officer of the Company since May, 1998. From October, 1986
until March 1992, Mr. Ditman served as Director, Chief Financial Officer and
Treasurer of the Daytona Group and Drubner Broadcasting. During the same period
of time, Mr. Ditman also served as Chief Financial Officer and Treasurer of The
Drubner Investment Group. Mr. Ditman served as Corporate Controller of Victor
Electric Wire and Cable Corporation from November 1981 until October, 1986. Mr.
Ditman served as a senior auditor for KPMG Peat Marwick from 1977 to 1981. Mr.
Ditman became a Certified Public Accountant in 1980 and was licensed in the
State of Rhode Island. Mr. Ditman received his Bachelor of Science in
Accounting from Northeastern University in June 1977.
Dr. Barker has been a senior executive officer and director of Prime since
1996. He is a licensed optometrist with 25 years experience in the eye care
industry. From 1993 to 1996, Dr. Barker served as co-president of Consolidated
Eye Care, Inc., the parent company of AECC/Pearlman Buying Group and AECC Total
Vision Health Plan, Inc. Also during this period Dr. Barker served as vice
president and secretary of Optometric Eye Care Center, P.A. Dr. Barker received
his Doctor of Optometry degree in 1975 from Southern College of Optometry in
Memphis, Tennessee.
Mr. Franklin has served as a Director of Prime since 1998. Since February
1997, Mr. Franklin has served as Chairman of the Board of Directors of Bolle
Inc., a NASDAQ National Market company, which is a manufacturer, marketer and
distributor of premium eyewear. Mr. Franklin has been Chairman and Chief
Executive Officer of Marlin Holdings, Inc., the general partner of Marlin
Capital, L.P., a private investment partnership since October 1996. From May
1996 until December 1998, Mr. Franklin served as Chairman and Chief Executive
Officer of Lumen Technologies, Inc., a NYSE
25
<PAGE>
company, a manufacturer and distributor of specialty lighting equipment and
served as Executive Chairman from May 1996 until December 1998. Mr. Franklin
was Chairman of the Board and Chief Executive Officer of Lumen's predecessor,
Benson Eyecare Corporation from October 1992 to May 1996 and President from
November 1993 until May 1996. Mr. Franklin was non-executive Chairman and a
director of Eyecare Products plc, a London Stock Exchange Company, from
December 1993 until February 1999. In addition, Mr Franklin has served as a
director of Specialty Catalog Corp., a NASDAQ listed company, since 1994 and of
Corporate Express, Inc., a NASDAQ listed company since March, 1999. Mr.
Franklin also serves on the boards of a number of privately held companies and
charitable organizations. Mr. Franklin received a B.A. in Political Science
from the University of Pennsylvania in 1986.
Mr. Croweak has served as a Director of OptiCare since 1995. Mr Croweak
has been Chairman of the Board of Directors of Anthem Blue Cross Blue Shield of
Connecticut since August, 1997. From April 1988 through August, 1997, Mr.
Croweak was Chief Executive Officer of Blue Cross Blue Shield of Connecticut.
Mr. Croweak has been a director of Anthem, Inc., a multi-state health insurance
company based in Indianapolis, Indiana, since August, 1997. He is also a
director of United Illuminating, a diversified utility operator based in New
Haven, Connecticut. Mr. Croweak received a BBA degree from the University of
Cincinnati in 1959.
Saratoga's Bylaws provide that the number of directors shall be determined
by the board. Pursuant to the Merger Agreement, upon closing of the mergers,
the current two Saratoga directors will resign, and the board of directors of
Saratoga will be reconstituted.
The Saratoga board recommends a vote FOR each of the nominees. Unless
otherwise specified, the proxies Saratoga solicits will be voted "FOR" the
nominees mentioned above. In case any such nominee becomes unavailable for
election to the Saratoga board, which is not anticipated, the persons named in
the enclosed form of proxy will have full discretion to vote or refrain from
voting for any other nominee in accordance with their best judgment.
Vote Required. For the election of directors, a plurality of the votes
cast by the holders of Saratoga common stock present in person or by proxy at
the Special Meeting is required.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE NOMINEES FOR THE BOARD OF
DIRECTORS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES.
PROPOSAL 2--REVERSE SPLIT PROPOSAL
At the Special Meeting, the Saratoga stockholders will be asked to approve
the amendment of the certificate of incorporation to authorize the reverse
split of the outstanding common stock at the rate of 1 for 0.06493. The text of
the amendment is set forth in Article FOURTH of the certificate of amendment of
the certificate of incorporation, which is attached to this Proxy
Statement/Prospectus as Annex B. Implementation of the reverse split is
contingent upon approval and adoption by the Saratoga stockholders and the
impending effectiveness of the mergers.
The certificate of incorporation of Saratoga currently authorizes an
aggregate of 55,000,000 shares of stock, of which 50,000,000 are shares of
common stock, $0.001 par value per share, and 5,000,000 are shares of preferred
stock. In connection with the mergers, the authorized capital of Saratoga is
being restructured so that:
o there will be sufficient common stock to issue in the mergers,
o there will be sufficient common stock to be used for future incentive
compensation schemes, including the Performance Stock Program, and
o there will be sufficient common stock to enable the combined company to
raise additional funds in the future.
OptiCare and Prime are requiring Saratoga to engage in the reverse split,
rather than to increase the authorized capital stock of Saratoga, because the
Saratoga stock, in the period from January 1, 1997, through April 12, 1999
(i.e., the last date before the mergers were announced) has been very
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thinly traded at prices below $1.13 per share. By reducing the number of shares
issuable in the mergers, management of the combined company hopes to maintain
or increase the price per share of common stock. By itself, the Reverse Split
would not necessarily improve shareholder value of the combined company.
The effective date of the reverse split will be the date on which the
certificate of amendment of the certificate of incorporation of Saratoga is
filed with the Delaware Secretary of State, which is expected to be just prior
to the closing of the mergers.
Effects of the Reverse Split. As of the Record Date, there were issued and
outstanding 3,465,292 shares (before giving effect to the reverse split) of
Saratoga common stock and no options. After giving effect to the reverse split,
the stockholders of Saratoga will own approximately 225,000 shares of common
stock before the mergers.
The principal effect of the reverse split would be to decrease the number
of outstanding shares of Saratoga common stock. Specifically, the 3,465,292
shares of Saratoga Common Stock issued and outstanding on the Saratoga record
date, would, as a result of the reverse split, be converted into approximately
225,000 shares of Saratoga common stock (with the precise number depending upon
the extent of fractional shares which will be converted to cash as described
below). After giving effect to the mergers, approximately 14,000,000 shares of
Prime common stock issued and outstanding would, as a result of the mergers, be
converted into approximately 4,387,950 shares of Saratoga common stock (with
the precise number depending upon the extent of fractional shares), after
giving effect to the reverse split. After giving effect to the mergers, the
373,800 shares of OptiCare capital stock issued and outstanding would, as a
result of the mergers, be converted into approximately 4,387,050 shares of
Saratoga common stock (with the precise number depending upon the extent of
fractional shares), after giving effect to the reverse split. Because the
number of shares of Saratoga common stock authorized for issuance by the
Saratoga certificate of incorporation following the reverse split will remain
at 50,000,000 shares, the reverse split (before the mergers) will result in
approximately 3,240,292 "new" (or post-split) shares of Saratoga common stock
available for issuance by Saratoga. Immediately prior to the mergers, Saratoga
will have approximately 49,775,000 shares available for issuance. Saratoga
intends to issue approximately 8,775,000 shares of common stock in the mergers
and will have then approximately 41,000,000 shares of common stock available
for issuance.
Saratoga has no arrangements, understandings, agreements or plans to issue
any shares of common stock or securities convertible into common stock, other
than:
o approximately 683,761 shares issuable to Marlin Capital under the
convertible notes (see "Related Agreements--Treatment of Prime Class A
Preferred Stock and Warrants");
o approximately 1,463,193 shares issuable upon the exercise of options and
warrants issued by OptiCare and Prime, which will be exchanged for
combined company options and warrants in connection with the mergers;
o approximately 407,700 shares and warrants to be issued to Bank Austria AG
(or its affiliates) in connection with the new credit facility;
o options and/or shares issuable pursuant to the Performance Stock Program
and the Employee Stock Purchase Plan.
Dissenters' Rights. Pursuant to the Delaware General Corporation Law,
holders of the Saratoga common stock are not entitled to appraisal rights with
respect to the Reverse Split.
Vote Required. An affirmative vote of the holders of a majority of the
outstanding shares of Saratoga common stock entitled to vote is required to
approve the reverse split.
No Fractional Shares. Saratoga shall not issue fractional shares on
account of the reverse split. Holders of Saratoga common stock who would
otherwise be entitled to a fraction of a share on account of the reverse split
shall receive, in lieu of a fractional share, an amount in cash equal to the
product of
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(i) the fractional share which a holder would otherwise be entitled to,
multiplied by
(ii) an amount which is the closing sale price, or, if not available, the
average of the closing bid and closing asked price, of the Saratoga common
stock as reported by the National Quotation Bureau, New York, New York, on the
business day prior to the effective time of the mergers, divided by
(iii) 0.06493. No interest shall be payable on the cash-in-lieu amount.
Federal Income Tax Consequences to Present Holders of Saratoga Common
Stock. The following summary of the federal income tax consequences of the
reverse split to present holders of Saratoga common stock is based on current
law, including the Internal Revenue Code, and is for general information only.
The tax treatment of a stockholder may vary depending upon the particular facts
and the circumstances of such stockholder. Certain stockholders, including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, non-resident aliens, foreign corporations and persons who do
not hold common stock as a capital asset, may be subject to special rules not
discussed below. ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
REVERSE SPLIT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL OR
FOREIGN INCOME TAXES AND OTHER LAWS.
The receipt of new shares in the reverse split by pre-merger stockholders
of Saratoga should be a non-taxable transaction under the Internal Revenue Code
for federal income tax purposes. Consequently, a stockholder receiving new
shares will not recognize either gain or loss, or any other type of income,
with respect to whole new shares received as a result of the reverse split. In
addition, the tax basis of such stockholder's common stock prior to the reverse
split will carry over as the tax basis of the holder's new shares. The holding
period of the new shares should also include the stockholder's holding period
of the common stock prior to the reverse split, provided that the stockholder
held such stock as a capital asset on the effective date of the reverse split.
The receipt by a stockholder of cash in lieu of a fractional new share
pursuant to the reverse split will be a taxable transaction for federal income
tax purposes. Accordingly, a stockholder who receives cash in lieu of a
fractional new share should recognize gain or loss equal to the difference
between the amount of cash received and the portion of the aggregate tax basis
in his or her shares of common stock allocable to the fractional new share
interest for which he/she received cash. If the shares of common stock were
held as a capital asset on the effective date of the reverse split, then the
stockholder's gain or loss will be a capital gain or loss. Such capital gain or
loss will be long-term capital gain or loss if the stockholder's holding period
for the shares of common stock is longer than one year.
Based on certain exceptions contained in regulations issued by the
Internal Revenue Service, Saratoga does not believe that it or its stockholders
will be subject to backup withholding or informational reporting with respect
to cash distributed in lieu of fractional new shares.
Exchange of Shares--Holders of Saratoga Common Stock Prior to the
Mergers. On or after the effective date of the mergers, Saratoga will mail to
each stockholder of record a letter of transmittal and instructions on
exchanging his/her share certificate for new certificates. A stockholder will
be able to receive a certificate representing new shares and, if applicable,
cash in lieu of a fractional new share, only by transmitting to the Exchange
Agent such stockholder's stock certificate(s) for shares of common stock
outstanding prior to the reverse split, together with the properly executed and
completed letter of transmittal, and such evidence of ownership of such shares
as the Exchange Agent may require. Stockholders will not receive certificates
for new shares unless and until they surrender the certificates representing
their shares of common stock outstanding prior to the Mergers. Stockholders
should not forward their certificates to the Exchange Agent until they receive
the letter of transmittal and should surrender their certificates only with
such letter of transmittal. (Holders of OptiCare and Prime securities will
receive a different letter of transmittal which explains the procedure for
exchanging their certificates representing securities of OptiCare and/or Prime
for certificates representing new shares.)
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Payment in lieu of a fractional new share will be made to any Saratoga
stockholder entitled thereto promptly after receipt of a properly completed
letter of transmittal and stock certificate(s) for all of his or her shares of
common stock outstanding prior to the reverse split. There will be no service
charge payable by stockholders in connection with the exchange of certificates
or in connection with the payment of cash in lieu of the issuance of a
fractional new share. The combined company will bear these costs.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE REVERSE SPLIT. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE REVERSE
SPLIT PROPOSAL.
PROPOSAL 3--NAME CHANGE PROPOSAL
The merger agreement requires Saratoga to change its name, if and when the
mergers are completed, to "OptiCare Health Systems, Inc." The name "OptiCare
Health Systems, Inc." more accurately describes the business of Saratoga after
the mergers. The name change will become effective only if and when the mergers
are closed. The American Stock Exchange has advised Saratoga that if and when
the listing application is approved, the shares will be traded under the symbol
.
Implementation of the name change is contingent upon approval by the
Saratoga stockholders and the closing of the mergers.
A copy of the proposed certificate of amendment to the certificate of
incorporation, incorporating the foregoing change, is attached to this Proxy
Statement/Prospectus as Annex B. The name change appears in Article FIRST of
the certificate.
Vote Required. An affirmative vote of the holders of a majority of the
outstanding shares of Saratoga common stock entitled to vote is required for
approval of the name change.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE NAME CHANGE. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE NAME CHANGE
PROPOSAL.
PROPOSAL 4--INDEMNIFICATION PROPOSAL
At the Special Meeting, the stockholders will be asked to approve a new
Article TWELFTH of the certificate of incorporation which will require the
combined company to indemnify its officers and directors to the maximum extent
permitted under law. The text of the amendment is contained in Article TWELFTH
of the proposed certificate of amendment to the certificate of incorporation,
which is included in this Proxy Statement/Prospectus as Annex B.
Implementation of the indemnification proposal is contingent upon approval
and adoption by the Saratoga stockholders and the effectiveness of the mergers.
The boards of directors of Saratoga, OptiCare and Prime each has concluded
that the combined company will be better able to attract and retain qualified
directors and officers by requiring the combined company to (a) indemnify
officers, directors and certain other agents of the combined company to the
maximum extent authorized by the Delaware General Corporation Law, and (b) pay
the expenses of such persons incurred in connection with any action, suit or
proceeding in advance of its final disposition.
Saratoga has no currently pending or threatened proceedings that would be
covered by the indemnification proposal. The indemnification provisions are
intended to be applied prospectively. The Saratoga certificate of incorporation
does not currently provide for indemnification of the directors and officers.
However, the Saratoga By-Laws currently contain indemnification provisions for
directors and officers which, among other things, (i) provide indemnification
of officers, directors and certain other agents of Saratoga to the maximum
extent authorized by the Delaware General Corporation Law and (ii) permits
Saratoga to pay expenses in advance of the final disposition of an action, suit
or proceeding. The indemnification provisions that the stockholders are being
asked to approve generally give the officers and directors the right to payment
by Saratoga of expenses incurred in connection
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with any action, suit or proceeding in advance of its final disposition as
opposed to merely permitting Saratoga to advance those expenses. The Saratoga
stockholders are disadvantaged if they pursue derivative suits against
directors and officers of Saratoga to the extent that Saratoga is required to
pay the directors and officers for any damages and expenses that the directors
and officers incur in connection with that derivative suit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the combined company pursuant to the foregoing provisions, or otherwise, the
combined company has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Vote Required. An affirmative vote of the holders of a majority of the
outstanding shares of Saratoga common stock entitled to vote at the Special
Meeting is required to approve the indemnification proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE INDEMNIFICATION PROPOSAL.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE INDEMNIFICATION PROPOSAL.
PROPOSAL 5--ADOPTION OF PERFORMANCE STOCK PROGRAM
The board of directors on May 14, 1999, approved, subject to shareholder
approval and the effectiveness of the mergers, and recommends to the
shareholders for their approval, the adoption of the Performance Stock Program.
The following is a brief summary of certain information relating to the
Program. This summary does not purport to be complete and is subject in all
respects to the applicable provisions of the Program, a copy of which is
included in this Proxy Statement/Prospectus as Annex C.
GENERAL
The Performance Stock Program provides for the issuance of awards of an
aggregate maximum of up to the lesser of:
(a) 3,000,000 shares (after giving effect to the reverse split) of common
stock of the combined company, or
(b) 15% of the sum of
(1) the number of shares outstanding at the time the limitation in this
clause (b) is calculated,
(2) the number of shares subject to options and performance shares then
outstanding, and
(3) the number of shares then available for future awards under the
Program.
Awards may be comprised of incentive stock options, nonqualified stock
options, restricted stock, performance shares or cash units, each as described
below. No single individual may receive awards for:
(a) more than 600,000 shares in 1999 (excluding substitute options
granted to option holders of OptiCare and Prime pursuant to the
merger agreement) or
(b) more than 200,000 shares in any subsequent calendar year.
The number of employees and service providers currently eligible for
awards is approximately 950. Authorized but previously unissued shares,
treasury shares and shares forfeited under the Program may be issued again
under the Program up to the maximum aggregate limit.
The Program will be administered by the board of directors of the combined
company or the compensation committee of the board of directors, consisting of
at least two members of the Board, each of whom will be a "Non-Employee
Director" as defined in Rule 16b-3 under the Securities Exchange Act of 1934,
as amended, and an "outside director" as defined in Treasury Regulations
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Section 1.162-27(e)(3). The compensation committee will have the general
authority to interpret the provisions of the Program and adopt such rules as it
deems necessary or desirable for the administration of the Program. Its further
functions will involve such matters as the selection of employees, consultants
and other service providers who will participate in the Program subject to the
terms of the Program and the determination of the size and terms of awards made
under the Program to such persons.
The granting of awards pursuant to the Program is discretionary with the
compensation committee. The granting of awards to any employee or service
provider does not require the combined company to employ or continue to employ
the employee or to utilize the services of a service provider.
The compensation committee shall grant options to purchase an aggregate of
approximately 705,000 shares of common stock under the program to option
holders of OptiCare and Prime effective as of the mergers in substitution for
such options, which shall contain substantially identical terms as the options
substituted for, except for a change in the exercise price and the shares for
which options can be exercised to reflect the mergers.
NON-QUALIFIED AND INCENTIVE STOCK OPTIONS
The compensation committee may designate options as either non-qualified
stock options (i.e., options not entitled to special tax benefits under the
Internal Revenue Code) or incentive stock options pursuant to Section 422 of
the Code. See "Federal Income Tax Consequences". Incentive stock options may
only be issued to employees and must be issued at an option price no less than
the fair market value of the combined company's common stock on the date of the
grant (and 110% of fair market value in the case of 10% shareholders). Subject
to the foregoing, the price of the shares subject to each option is set by the
compensation committee.
The exercise of options granted under the Program is subject to terms and
conditions set by the compensation committee and set in the agreement
evidencing the option. The purchase price for the shares acquired upon exercise
of the option may be paid:
(a) in cash or by certified check, or
(b) at the discretion of the committee, by delivery of one or more stock
certificates evidencing other shares of the combined company with a fair
market value equal to the option price, or
(c) by a combination of cash and common stock as described in clauses (a)
and (b).
The compensation committee sets the expiration date of each option, but in
the case of incentive stock options, the expiration date may not be longer than
ten years from the date of the grant (five years in the case of 10%
shareholders).
All incentive stock options will terminate on the earlier of the
expiration date or one year following termination of employment due to
disability or death. Upon termination of employment for any reason other than
disability or death, all options will expire on the earlier of their expiration
date or ninety days following termination of employment, unless otherwise
provided in an applicable agreement or instrument. Non-qualified stock options
may be subject to the same provisions with respect to termination, or may
contain such other provisions as the compensation committee determines.
Options are not transferable or assignable other than by will or the laws
of descent and distribution and are exercisable during the participant's
lifetime only by the participant, except that the compensation committee may,
in its sole discretion, allow for transfers of awards (other than incentive
stock options) to other persons or entities.
RESTRICTED STOCK
An award of a share of restricted stock is an award to a participant of a
share of the common stock of the combined company generally conditioned upon
the attainment of performance goals
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established by the compensation committee for the performance period to which
the award relates and the continued employment or retention as a service
provider of the participant with the combined company or any majority-owned
subsidiary of the combined company through the end of the performance period.
During the performance period, the participant has all of the rights of a
shareholder of the combined company, including the right to receive dividends,
except that the participant shall not have custody of the shares of common
stock nor the right to transfer ownership of the shares during the performance
period.
Generally, a participant's termination of employment or provision of
services to the combined company prior to the end of the relevant performance
period results in forfeiture of an award of restricted stock, although the
compensation committee is authorized to determine that all or any portion of
the award shall not be forfeited. If a portion of a restricted stock award is
forfeited, the non-forfeited portion is reduced by the amount of any dividends
previously paid to the participant with respect to the forfeited portion.
A participant may elect, by written form provided to the compensation
committee no later than December 24 of the year prior to the year in which an
award of restricted stock is made, to have such award made in the form of
performance shares instead, as described below.
PERFORMANCE SHARES OR CASH UNITS
The compensation committee may establish performance programs and grant
awards of performance shares or cash units pursuant to such programs. The
compensation committee will establish performance goals and a schedule relating
to such goals to determine the performance awards to be granted to
participants. At the completion of a performance award period, the compensation
committee shall determine the award to be made to each participant by
multiplying the number of performance units granted to each participant by a
performance factor representing the degree of attainment of the performance
goals.
Performance shares shall generally be paid in the form of common stock,
and cash units shall be paid in cash, provided that the compensation committee
may pay performance shares in the form of cash at the request of a participant.
Payments of performance awards shall be made as soon as practicable after the
end of an award period, provided that participants may instead elect, by filing
a written form with the compensation committee by December 24 of the year prior
to which an award is made, to have such award credited to a performance share
account instead (with cash units being converted to performance shares at their
current fair market value). Such account will be a bookkeeping account, which
will be credited with the performance shares earned, as well as the equivalent
(in additional performance shares) of any dividends that would be payable on
common stock, and will be paid in the form of common stock upon the termination
of a participant's employment or provision of services to the combined company,
unless the participant elects to have payment occur on another date by a
written election filed with the compensation committee at least one year prior
to the date on which the payment would otherwise occur. However, in the event
of a participant's disability or death, the participant or the participant's
beneficiary will be entitled to receive an immediate payment with respect to
the entire performance account.
Participants who have elected to have performance accounts established for
them will also be able to receive payments from such accounts earlier than
elected in the event they suffer an unforeseeable financial emergency, as
determined in the sole discretion of the compensation committee. They may also
elect to receive early payments if they agree to forfeit six percent of the
amount of such payment.
THE EFFECT OF A CHANGE IN CONTROL
In the event of a change in control of the combined company, as defined in
the program, all awards will become fully vested and all options will become
immediately exercisable if the compensation committee so provides, if an award
so provides or if an employment agreement with a recipient of an award so
provides.
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AMENDMENT, SUSPENSION AND TERMINATION OF THE PROGRAM.
The board may amend, suspend or discontinue the Program, provided that the
board may not take any action which would cause the Program not to comply with
Rule 16b-3 under the Securities Exchange Act of 1934, or Section 422 of the
Code, or any successor rules.
The Program will terminate upon adoption by the board of a resolution
terminating the Program, or upon the award and vesting of the maximum aggregate
number of shares of common stock available under the Program.
EFFECTIVENESS OF THE PROGRAM
If the stockholders approve the Program, the Program would become
effective upon the closing of the mergers. As noted above, Mr. Cooke, holder of
more than 64% of Saratoga's common stock, is expected to vote in favor of the
Program.
FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options.
o Holders of non-qualified stock options do not realize income as a result
of the grant of the non-qualified stock options, but normally realize
compensation income taxable at ordinary income rates upon the exercise of
a non-qualified stock option, to the extent that the fair market value of
the shares on the date of the exercise of the non-qualified stock options
exceeds the option exercise price paid.
o In the case of an optionee subject to Section 16(b) of the Exchange Act
who has held non-qualified stock options for less than six months and
exercises such non-qualified stock options, the ordinary income portion
generally would be calculated using the fair market value of the shares
upon the lapse of the six-month period from the date of grant of such
non-qualified stock options rather than the fair market value on the date
of exercise, unless the optionee elects to recognize income immediately
upon exercise in accordance with Section 83(b) of the Code.
o The combined company will be entitled to a tax deduction in an amount
equal to the amount that the optionee is required to include in ordinary
income at the time of such inclusion and will be required to withhold
taxes on such ordinary income.
o The optionee's initial tax basis for shares acquired upon the exercise of
a non-qualified stock option will be the option exercise price paid plus
the amount of ordinary income realized by the optionee. Any appreciation
in the value of such shares subsequent to the date such ordinary income
is recognized will qualify for long-term capital gains treatment if held
for more than 12 months.
Incentive Stock Options.
o Holders of incentive stock options will not be considered to have
received taxable income upon either the grant of an incentive stock
option or its exercise.
o Upon the sale or other taxable disposition of the shares of the common
stock so acquired, long-term capital gain normally will be recognized in
the full amount of the difference between the amount realized upon such
disposition and the option exercise price if no disposition of the shares
has taken place within either (a) two years from the date of grant of the
incentive stock option or (b) one year from the date of transfer of the
shares of the common stock to the optionee upon exercise.
o If the shares of the common stock are sold or otherwise disposed of
before the end of the one-year or two-year periods, the difference
between the incentive stock option exercise price and the fair market
value of the shares of the common stock on the date of exercise of the
incentive stock option will be taxed as ordinary income; the balance of
the gain, if any, will be taxed as capital gain.
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o If an optionee disposes of shares of the common stock before the
expiration of the one-year or two-year periods and the amount realized is
less than the fair market value of the shares at the date of exercise,
the optionee's ordinary income is limited to the amount realized reduced
by the option exercise price paid.
o The combined company will be entitled to a tax deduction in regard to an
incentive stock option only to the extent the optionee has ordinary
income upon sale or other disposition of the shares of the common stock.
o If an optionee transfers shares of the common stock acquired upon the
exercise of an incentive stock option to acquire other shares of the
common stock in connection with the exercise of another incentive stock
option, the optionee will recognize income on the transaction if the
transferred shares have not been held for the required holding periods.
o The difference between the fair market value of the common stock on the
exercise date and the exercise price of an incentive stock option is
deemed to be a "tax preference" under the alternative minimum tax rules
of the Internal Revenue Code.
Restricted Stock.
o A recipient of restricted stock will recognize as additional compensation
taxable as ordinary income for federal income tax purposes an amount
equal to the fair market value of the stock at the time of the lapse of
restrictions on the stock plus the amount of any dividends or other
distributions not previously received and recognized as additional
compensation with respect to such stock, unless the recipient makes an
election to include such award in ordinary income at the time of award.
o Unless such an election is made, a recipient subject to Section 16(b) of
the Exchange Act (i.e., officers, directors and 10% stockholders of the
combined company) who receives restricted stock will recognize ordinary
income at the later of the time of the lapse of restrictions or six
months after the date of the award.
o When a participant disposes of shares of common stock acquired under the
Performance Stock Program, any amount received in excess of the value of
the shares of common stock on which the participant was previously taxed
will be treated as long-term or short-term capital gain, depending upon
the holding period of the shares. If the amount received is less than
that value, the loss will be treated as long-term or short-term capital
loss, depending upon the holding period of the shares.
o The combined company is entitled to claim a federal income tax deduction
in the same amount and at the same time as the recipient recognizes
ordinary income.
Performance Shares and Cash Units.
o A participant who receives a performance share or cash unit will
recognize ordinary compensation income when paid the performance share
(in an amount equal to the fair market value of the share when paid,
subject to the special six month rule for recipients subject to Section
16(b) of the Exchange Act) or cash.
o Participants who elect to have performance shares or cash units deferred
in a performance share account will delay taxability until amounts are
paid with respect to such accounts.
o The combined company will recognize a deduction when participants
recognize ordinary income. The amount of the combined company's
deductions will equal the amount of income recognized by the
participants.
o When a participant disposes of shares of common stock acquired as a
performance share, or attributable to a performance share account, any
amount received in excess of the value of the shares of common stock on
which the participant was previously taxed will be treated as
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long-term or short-term capital gain, depending upon the holding period
of the shares. If the amount received is less than that value, the loss
will be treated as long-term or short-term capital loss, depending upon
the holding period of the shares.
Vote Required. The vote required for the approval of the Performance Stock
Program is a simple majority of the shares of Saratoga common stock present in
person or by proxy at the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE PROGRAM. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROGRAM.
PROPOSAL 6--ADOPTION OF
EMPLOYEE STOCK PURCHASE PLAN
The board of directors on May 14, 1999, approved, subject to stockholder
approval, and recommends to the stockholders for their approval, the adoption
of the Saratoga Resources, Inc. 1999 Employee Stock Purchase Plan. The
following is a brief summary of certain information relating to the Plan. This
summary does not purport to be complete and is subject in all respects to the
applicable provisions of the Plan, a copy of which is attached hereto as Annex
D.
GENERAL
The Plan provides for an aggregate maximum of up to 450,000 shares of
common stock of the combined company to be sold to employees under the terms of
the Plan. Authorized but previously unissued shares and treasury shares may be
issued under the Plan up to the maximum aggregate limit.
The Plan will be administered by the compensation committee of the board
of directors, consisting of at least two members of the board. The compensation
committee will have the general authority to interpret the provisions of the
Plan and adopt such rules as it deems necessary or desirable for the
administration of the Plan.
ELIGIBILITY
All employees of the combined company and its subsidiaries, other than
certain 5% shareholders, are eligible to participate in the Plan if they
customarily work at least 20 hours per week for at least 5 months in a year.
ELECTION TO PARTICIPATE
Eligible employees elect to participate in the Plan by contributing a
portion of their compensation (not to exceed the lesser of 20% of base pay or
$21,250) to purchase shares of common stock under the Plan. Participating
employees may change their elections at any time, but not more than once in a
calendar quarter.
PURCHASE PRICE
Employee contributions will be used to purchase shares of common stock as
of the last business day of each calendar quarter at a price equal to 85% of
the then fair market value of such shares. Only whole numbers of shares will be
purchased for each employee, with any excess contributions being carried over
to the next quarter.
AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN.
The board may amend, suspend or discontinue the Plan, provided that the
board may not take any action which would cause the Plan not to comply with
Section 423 of the Code, or any successor rules, or change the number of shares
reserved under the Plan (other than due to stock splits, stock dividends or
other such events).
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The Plan will terminate upon adoption by the board of a resolution
terminating the Plan, or upon the sale of the maximum aggregate number of
shares of common stock available under the Plan.
EFFECTIVENESS OF THE PLAN
The proposed Plan shall become effective upon the closing of the mergers.
FEDERAL INCOME TAX CONSEQUENCES
o The Employee Stock Purchase Plan will qualify as a plan adopted under
Section 423 of the Code, and, therefore, an employee will not realize
income for federal income tax purposes at the time shares of common stock
are purchased. Instead, if the holding period requirement (described
below) is satisfied, or if the disposition occurs due to the death of the
employee, an employee will recognize as compensation income at the time
of sale or other disposition of common stock acquired under the Plan an
amount equal to the lesser of (a) the "amount of the discount" or (b) the
amount by which the amount realized on such sale or disposition exceeds
the amount paid by the employee for the shares. For federal income tax
purposes, the term "amount of the discount" with respect to such shares
is equal to 15% of the fair market value of the shares on the date of
purchase.
o Any additional gain on the sale or other disposition of common stock will
be taxed as long-term capital gain.
o Any loss on the sale or other disposition of common stock will be treated
as long-term capital loss. To meet the holding period requirement under
the Code, the common stock must not be sold or otherwise disposed of
until at least two years after the purchase.
o If an employee sells or otherwise disposes of the common stock within two
years after the date of purchase (other than due to death), then the
employee will recognize as compensation income the full amount of the
excess of the market price of common stock at the date of purchase over
the amount paid by the employee for the common stock.
o Any additional gain realized on the sale or other disposition of the
common stock will be taxed as a capital gain, which will be long-term if
the employee has held the common stock for more than one year, and any
loss (after increasing the employee's basis as described below) will be a
capital loss.
o The employee's basis in the common stock will be equal to the purchase
price increased by any amount included in income as compensation with
respect to such common stock under the foregoing rules.
o The holding period of the common stock will begin on the day following
the date of purchase.
o The combined company will be entitled to a deduction for the amount of
compensation income recognized by an employee who sells or otherwise
disposes of the common stock within two years of the date of purchase
(other than due to death).
o The combined company will not be entitled to a deduction for any
compensation income recognized by an employee who holds the common stock
for at least two years after purchase or who transfers the common stock
due to death, or for any capital gain recognized by an employee.
Vote Required. The vote required for approval of the Employee Stock
Purchase Plan is a simple majority of the shares of Saratoga common stock
present in person or by proxy at the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE PLAN. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PLAN.
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DESCRIPTION OF THE MERGERS
MATERIAL CONTACTS AND BOARD DELIBERATIONS
On October 23, 1998, the board of directors of Prime met and authorized
Marlin Capital, L.P. to explore strategic alternatives for Prime, which might
include a business combination with another company. Mr. Martin E. Franklin,
who is a director of Prime, is also the Chief Executive Officer and principal
stockholder of Marlin Holdings, Inc., which is the general partner of Marlin.
Marlin currently holds Preferred Stock and detachable warrants in Prime.
As part of Marlin's ongoing business, Mr. Franklin had been aware of
Saratoga. On October 30, 1998 Thomas Cooke, CEO of Saratoga, and Mr. Franklin
met in Rye, New York and discussed a proposed transaction between Saratoga and
Prime.
In early November, 1998, Mr. Franklin contacted Dean J. Yimoyines, M.D.,
Chairman and Chief Executive Officer of OptiCare, to explore whether OptiCare
would be interested in a potential business combination with Prime and
Saratoga. Mr. Franklin had met Dr. Yimoyines approximately six months earlier
through a mutual business acquaintance. Also, Mr. Franklin had previously been
aware of Dr. Yimoyines and OptiCare's reputation in the eye care industry. Mr.
Franklin indicated that Marlin had been asked by the Prime board to explore
strategic alternatives for Prime, which might include a business combination
with another company.
During the November 16, 1998 OptiCare board of directors meeting, OptiCare
management advised the board of this initial conversation with Prime and
management was authorized by the OptiCare board to continue discussions with
Prime. Based on this guidance, representatives of OptiCare and J.P. Morgan
Securities, Inc., adviser to OptiCare, met with representatives of Prime and
Marlin in mid- and late November, 1998, to better understand each company's
organization, structure and financial position.
On November 29, 1998, Mr. Cooke met with both Mr. Franklin and Ian Ashken
of Marlin to discuss proposed terms of a transaction involving Saratoga, Prime
and OptiCare.
The results of these meetings were reviewed with the OptiCare board during
its meeting of December 8, 1998. In that meeting, the OptiCare board authorized
OptiCare management to pursue discussions of a potential business combination
with Prime and Saratoga and to develop those discussions into a more detailed
summary of terms.
On December 10, 1998, the Prime board met and discussed the meetings with
management of OptiCare. In that meeting, among other things, the Prime board
authorized Prime to enter into a non-binding letter of intent with OptiCare and
Saratoga.
In mid-December, 1998, representatives of OptiCare and Prime began more
detailed discussions regarding the form of a potential combination. A
preliminary discussion of potential relative contributions by the parties was
also reviewed among the principals during those meetings as well as by J.P.
Morgan Securities, Inc.
On December 21, 1998, the Saratoga board met and authorized Mr. Cooke to
enter into a non-binding letter of intent for the purpose of merging Saratoga
with Prime and OptiCare.
Based on the outcome of the mid-December discussions, Saratoga, Prime and
OptiCare developed a non-binding letter of intent which was signed by all three
parties on December 22, 1998. However, the parties agreed to develop a more
detailed memorandum of understanding to memorialize a more specific description
of the terms of a potential combination.
Discussions among the parties regarding the components of this memorandum
of understanding continued in late December and early January, 1999. An
important part of these discussions was the treatment of the status of Prime's
ophthalmology business. In particular, the parties discussed the failure of
Prime to successfully and profitably perform under its service agreements and
the need to alter the way Prime operates this business.
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A proposed memorandum of understanding was presented to the OptiCare board
prior to and then reviewed during its meeting of January 13, 1999. J.P. Morgan
Securities, Inc., participated in that meeting and advised the OptiCare board
that, on the basis of financial information provided by OptiCare and Prime as
well as the proposed memorandum of understanding, the transaction appears to be
a favorable transaction for OptiCare. At that meeting, the OptiCare board
authorized OptiCare management to execute the memorandum of understanding.
On January 22, 1999, the parties executed the memorandum of understanding.
In the weeks subsequent to the signing of the memorandum of understanding,
each of OptiCare, Prime and Saratoga conducted due diligence with respect to
the other parties.
On February 22, 1999, the parties and/or their legal counsel attended a
meeting at OptiCare's offices in Connecticut in order to initiate negotiations
of a merger agreement among OptiCare, Prime and Saratoga.
On February 23, 1999, the Prime board met and discussed the status and
timetable of the mergers.
During a meeting of the OptiCare board on March 5, 1999, management and
counsel to OptiCare advised the OptiCare board of the status of OptiCare's due
diligence. In that meeting, the OptiCare board authorized OptiCare management
to proceed with the possible transaction and pursue continued work on a set of
definitive agreements.
During March, 1999, representatives of OptiCare, Prime and Saratoga and
their respective financial and legal advisors negotiated the terms of a merger
agreement among the respective companies and engaged in further due diligence.
In its meeting on March 8, 1999 the Prime board reviewed and discussed the
proposed mergers and the merger agreement and authorized the execution of the
merger agreement. The merger agreement was approved by the Prime board, with
Drs. Allan Barker and Blair Harrold abstaining from the vote. The Prime board
considered it to be in the best interest of its stockholders to merge Prime
pursuant to the terms of the merger agreement.
On March 26, 1999, the Saratoga board met and discussed, among other
things, the proposed merger agreement, the merger consideration and the
mergers. The Saratoga board considered it in the best interest of its
stockholders to enter into the merger agreement and to consummate the
transactions contemplated thereby. In reaching this determination, the Saratoga
board assumed that the spinoff of Saratoga Holdings I, Inc. and the spinoff or
divestiture of its other three subsidiaries, Lobo Energy, Inc. Lobo Operating,
Inc. and Saratoga-Texas, would be consummated prior to the mergers.
The OptiCare board met on March 29, 1999 to review the proposed merger
agreement and authorized Dr. Yimoyines, in his judgment, to sign the definitive
agreement as soon as a number of then open items were resolved. The OptiCare
board considered it in the best interests of OptiCare's stockholders to enter
into the merger agreement if the open items could be satisfactorily resolved.
These open items included, among others, successful negotiation with Drs.
Harrold and Barker of Prime on the terms of their participation in the combined
company after closing of the mergers as substantial stockholders, directors and
senior officers. On March 29, 1999, OptiCare management invited all of its
Class B preferred shareholders to an informational meeting to review the terms
of the proposed merger with Prime and Saratoga. Along with many of OptiCare's
Class B preferred shareholders, representatives from OptiCare and J.P. Morgan
Securities, Inc. participated in the meeting in which questions about the
potential business combination were raised and addressed.
On March 30, 1999, Drs. Harrold and Barker sued Prime and certain other
parties. Thereafter, the plaintiffs and defendants in that litigation
negotiated terms of a potential settlement, which resulted in the execution of
a settlement agreement between the parties dated April 9, 1999. After reviewing
the terms of the settlement agreement, Saratoga, OptiCare and Prime negotiated
several amendments to the draft merger agreement. See "Summary of the Merger
Agreement."
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On April 7, 1999, the Prime board met and discussed in detail the draft of
the negotiated settlement agreement with Drs. Barker and Harrold. After
considerable discussion, the Prime board authorized Prime to accept the
settlement agreement.
On April 9, 1999, Drs. Harrold and Barker entered into a settlement
agreement among Optometric EyeCare Centers, P.C., Prime, Consolidated EyeCare,
Inc., and the other parties to the lawsuit. For a summary of the background and
material terms of the settlement agreement, see "Related Agreements--Settlement
Agreement."
On April 12, 1999, the Prime board approved the terms of the merger
agreement and authorized an officer to execute the merger agreement.
On April 12, 1999, the Saratoga board approved the terms of the merger
agreement and authorized Mr. Cooke to execute the merger agreement.
The merger agreement was signed on April 12, 1999. On April 13, 1999,
Saratoga issued a press release announcing the execution of the merger
agreement.
SARATOGA'S BUSINESS STRATEGY AND REASONS FOR THE MERGERS
Saratoga's board of directors wants to effect the mergers as a
continuation of its strategy of pursuing potential business opportunities and
preserving stockholder value. In 1996, Saratoga (through its wholly owned
subsidiary, named Saratoga Resources, Inc., a Texas corporation
("Saratoga-Texas")) sold its oil-producing properties and eliminated its
substantial bank debt, leaving Saratoga with approximately $1,500,000 in liquid
assets, and certain other assets that Saratoga continues to utilize (through
Saratoga-Texas) in its oil and gas exploration and development business.
In 1998, Saratoga commenced operation of a consumer finance business
through a newly organized subsidiary, Saratoga Holdings, I, Inc., a Texas
corporation, by the acquisition of a portfolio of consumer debt receivables at
a deep discount. Prior to the closing of the mergers, Saratoga intends to
distribute to its stockholders, on a pro rata basis, substantially all the
capital stock of Saratoga Holdings (except for Saratoga Holdings capital stock
held by Saratoga-Texas). Saratoga's board also proposes to dispose of
Saratoga-Texas by distributing to the Saratoga stockholders, on a pro rata
basis, 100% of the capital stock of Saratoga-Texas (the "Saratoga-Texas
Spinoff"). However, Saratoga cannot assure that either the Saratoga Holdings
spinoff or the Saratoga-Texas Spinoff will be consummated. Assuming the
completion of the Saratoga spinoffs, all the present assets of Saratoga will be
distributed to its current stockholders, other than approximately $150,000 in
cash. The spinoffs will be carried out immediately prior to the closing of the
mergers, and the holders of securities of OptiCare and Prime will not
participate in the Saratoga Holdings spinoff or the Saratoga-Texas spinoff. See
"Disposition of Saratoga's Subsidiaries" below.
Saratoga Stock Ownership. Upon closing of the mergers, the stockholders of
Saratoga immediately before the effective time of the mergers will have a
number of shares of Saratoga Common Stock which will constitute 2.5% of the
total amount of Saratoga Common Stock calculated on a primary basis to be
outstanding immediately after the effective time, giving effect to the reverse
split and the mergers and taking into account any shares of Saratoga Common
Stock which are not issued in the mergers and the reverse split because they
are attributable to former stockholders of OptiCare and Prime who may have
demanded and perfected statutory dissenters' rights.
Saratoga's Board of Directors believes, after three years of efforts to
find other business opportunities, that the mergers, as they have been
structured, represent a reasonable opportunity for Saratoga to utilize its
assets for the benefit of its stockholders. During the three year period,
Saratoga evaluated potential transactions but no proposals were made by,
considered by or given to the Saratoga board, except in that during early 1998,
Saratoga entered into a purchase and sale agreement for the acquisition of
certain oil and gas properties for a purchase price of $27.5 million. Saratoga
was ultimately unsuccessful in consummating the acquisition, but was awarded a
$400,000 break-up fee.
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The number of Saratoga shares to be issued to the OptiCare and Prime
securities holders was determined by negotiation between Saratoga, on the one
hand, and Prime and OptiCare, on the other. Inasmuch as Saratoga did not obtain
an opinion of a financial advisor regarding the fairness of the mergers to the
Saratoga stockholders, nor did it engage any investment banker to undertake an
analysis and make financial presentations to the Saratoga board of directors
regarding the valuation of Saratoga of each of Prime and OptiCare, Saratoga is
not in a position to state that the consideration in the mergers is necessarily
reflective or not reflective of the assets or business prospects of any of the
parties to the mergers. However, Saratoga does believe that value of the
consideration in the mergers represents the results of extensive negotiations,
and the Saratoga board has approved this transaction largely in recognition of
Saratoga's weak current cash and financial position and the Board's concerns
for Saratoga's long term viability.
On April 12, 1999, the Board of Directors of Saratoga concluded that the
mergers were fair to and in the best interests of Saratoga and its stockholders
and determined to recommend that the stockholders approve the stockholder
proposals in connection with the mergers.
The evaluation of the mergers and the decision of the board of directors
of Saratoga to pursue the mergers were based upon several factors and potential
benefits of the mergers including, but not limited to, the following:
o historical information concerning Saratoga's, OptiCare's and Prime's
respective businesses, financial performance and condition, operations,
and management;
o Saratoga management's view of the financial condition, results of
operations and businesses of Saratoga, OptiCare and Prime before and
after giving effect to the mergers and the Saratoga board's determination
of the mergers' effect on stockholder value;
o current financial market conditions and historical market prices,
volatility and trading information of Saratoga;
o the consideration OptiCare and Prime stockholders will receive in the
mergers;
o the belief that the terms of the merger agreement are reasonable;
o the spinoffs will be carried out immediately prior to the closing of the
mergers, and the holders of securities of OptiCare and Prime will not
participate in the Saratoga Holdings Spinoff, the Saratoga- Texas Spinoff
or other disposition of Saratoga Holdings or Saratoga-Texas; and
o substantially all the costs of carrying out the merger agreement, even
if the mergers are not consummated, are being paid by OptiCare and Prime.
The Saratoga board also identified and considered a number of potentially
negative factors in its deliberations concerning the mergers, including the
following:
o the risk that the potential benefits of the mergers may not be realized;
o the possibility that the mergers may not be consummated, even if
approved by the stockholders;
o other risks described in this Prospectus/Proxy Statement under "Risk
Factors."
o the Saratoga board is not in a position to state that the consideration
in the mergers is necessarily reflective or not reflective of the value
of the assets or business prospects of any parties to the merger, because
the Saratoga board did not
(a) obtain a fairness opinion of a financial advisor, or
(b) engage an investment banker to analyze the valuation of Saratoga,
Prime or OptiCare, Saratoga.
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o The consideration for the mergers is the result of extensive arm's
length negotiations.
The Saratoga board concluded, however, that, on balance, the potential
benefits to Saratoga and its stockholders of the mergers outweighed the risks
associated with the mergers.
The discussion of the information and factors considered by the Saratoga
board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the mergers, the Saratoga board
did not find it practicable to, and did not quantify or otherwise assign
relative weight to, the specific factors considered in reaching its
determination.
RECOMMENDATION OF SARATOGA'S BOARD OF DIRECTORS
After careful consideration, the Saratoga board of directors has
determined the merger agreement and the mergers are fair to and in the best
interests of the Saratoga stockholders. Saratoga's board of directors
recommends approval of the amendments of Saratoga's certificate of
incorporation and the other proposals as described in this Prospectus/Proxy
Statement, so that Saratoga may carry out the mergers.
OPTICARE'S REASONS FOR THE MERGER
During the last five years, OptiCare has evolved into a company focused on
four core businesses: ophthalmology services, retail optometry, managed care
services and ambulatory surgery centers, primarily in Connecticut. During that
period, OptiCare has developed the management and systems to successfully
operate those businesses.
Given OptiCare's emphasis on operations and systems, management and the
board of directors increasingly believed that consolidation opportunities would
be available to OptiCare as other eye care companies determined they would
benefit from OptiCare's operating capabilities to manage their growing
businesses. As a result, in early 1998, OptiCare management recommended to the
OptiCare board that OptiCare be available and opportunistic if business
combinations in the eye care industry become available. In the second and third
quarters of 1998, OptiCare management engaged in preliminary discussions with
another eye care company about a potential strategic business combination.
These discussions never reached the point of exchanged letters of intent,
signed term sheets or specific offers or proposals and, over time, were
abandoned. The OptiCare board was presented with an opportunity to consider a
potential business combination with Prime and Saratoga during the period from
late 1998 to early 1999.
Prior to executing the merger agreement, the OptiCare board considered the
following factors:
(a) the terms and conditions of the proposed mergers, including the
relative valuation of OptiCare. In its assessment of relative valuation,
the OptiCare board considered the material drop-off in public market
valuations for health care service companies in the physician practice
management (PPM) sector. For example, at the time of the board's decision,
public PPM stocks were trading at a then current 1999 price/earnings (P/E)
multiple of 9.4 versus an 18.6 P/E as of 12/31/98 and 31.7 P/E as of
12/31/97. Given this change in market conditions, the OptiCare board
believed management had negotiated a relative valuation on OptiCare that
was favorable to its shareholders.
(b) the financial condition, results of operations, business, market
position, prospects and strategic objectives of OptiCare as a stand alone
business. The OptiCare board considered OptiCare to be a well managed
company, but subscale. It believed that a business combination that
provided additional operational scale and national presence would permit
its management and extensive systems infrastructure to be much more
effectively leveraged. Absent such a scale oriented combination, the
OptiCare board believed OptiCare would continue to operate adequately and
grow its existing regionally focused business, but not grow as
significiently or as efficiently as available through a scale oriented
merger;
(c) the financial condition, results of operations, business, market
position, prospects and strategic objectives of Prime and Saratoga. The
OptiCare board carefully evaluated the due
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diligence performed on Prime and Saratoga to assure itself that the scale,
resources and business leverage available through this combination was not
offset by severely troubled operations that could irreparably damage the
combined company. In that regard, the OptiCare board was comforted by the
commitment by Prime to discontinue its ophthalmology PPM operations. In
addition, the OptiCare board considered it essential for Prime to
renegotiate the terms of its indebtedness and was reassured by the
successful progress of Prime's discussions with its senior lender; and
(d) the attractiveness of Saratoga's common stock and Saratoga's status
as a public company. The OptiCare board believed that the drop-off in
public company PPM stock valuations referenced above also limited the
ability of other health care service companies like OptiCare to pursue an
initial public offering (IPO) of their services. For example, the OptiCare
board confirmed that there had not been a PPM IPO since February 1998 and
near term prospects for an IPO were not promising. Therefore, the OptiCare
board believed that Saratoga's position as a public company permitted
OptiCare to achieve public market liquidity in a way not otherwise
available to OptiCare in the foreseeable future.
The OptiCare board chose to proceed with executing the merger agreement
because, in its view:
(a) the combination offered OptiCare shareholders the opportunity to own
a publicly traded stock;
(b) OptiCare's shareholders would participate in a much bigger company
with significantly enhanced scale and potential to leverage OptiCare
operating infrastructure;
(c) The discontinuation of Prime's ophthalmology business and the
implementation of a health service organization model and several other
structural changes to Prime's organization would improve the value of Prime
to the combined company; and
(d) The transaction was fair and favorable to OptiCare's shareholders.
The OptiCare board also evaluated several potential negative elements to
the proposed transaction. These included:
(a) the possibility that the combined company would have difficulty
integrating OptiCare and Prime, producting unfavorable financial results
for the combined company. This concern was the most prominent potentially
negative aspect of the proposed combination. In determining that this risk
could be managed, the OptiCare board relied on the due diligence of Prime
and Saratoga. In its due diligence analysis, OptiCare believe that the
three remaining business of Prime (after the ophthalmology business unit
was discontinued) were solid, well managed, and profitable on a net
operating profit basis. It believed that these operations could be
integrated over the time with OptiCare;
(b) the risks that the merger might not be consummated based on, for
example, failure to satisfy some of the closing conditions; and
(c) other risks described in this Proxy Statement/Prospectus under
"Risks Factors".
The above discussion does not cover everything that the OptiCare board
considered. In view of the variety of factors considered in evaluating the
mergers, the OptiCare board did not find it practicable to, and did not
quantify or otherwise assign relative weight to, the specific factors
considered in reaching its determination.
PRIME'S REASONS FOR THE MERGER
Prime had been engaged in a program of acquisitions of ophthalmology and
optometry practices from 1996 through 1998. Most acquisitions were made with a
combination of cash, promissory notes and Prime common stock, and the aggregate
purchase prices were based upon multiples of the historical earnings of the
practices. As these acquisitions were integrated into Prime, earnings did not
meet expectations. In 1996 and 1997, Prime suffered losses of $2,204,177 and
$1,405,261, respectively.
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In the second quarter of 1998, recognizing the need for additional capital,
Prime issued convertible preferred stock and warrants for $8,000,000 in cash.
By the fourth quarter of 1998, it had become clear to management that Prime
would suffer further losses in 1998, due to the poor performance and high debt
of the ophthalmology division, in addition to high administration costs. The
losses were the principal reason that Prime was in default of various financial
covenants of its credit facility with Bank Austria.
Accordingly, the Prime board of directors determined to:
(a) dispose of its ophthalmology operations,
(b) seek a merger partner or other reorganization that would provide
quality strategic, corporate and financial management, and
(c) execute a merger or other reorganization which would enable Prime to
restructure its existing debt and access other credit facilities for
Prime's core businesses.
During the fourth quarter 1998 the Prime board retained Marlin to evaluate
the Company's strategic alternatives. Marlin reviewed the possibility of Prime
continuing to operate on a standalone basis, alternative reorganizations of
Prime and the feasibility of Prime raising new capital on a standalone basis.
After this review, Marlin advised the Prime board that it is in the best
interests of the Prime stockholders and the survival of Prime to exit the
physician practice management business and merge with OptiCare.
In reaching conclusion to exit the Physician Practice Management business,
the Prime board undertook the following analysis. The original model on which
Prime's largest business segment was based (the PPM model) was not working as
originally contemplated either for the Prime or for the physician practices
managed by Prime. Prime's other business segment, eye care services, was
profitable and could be the foundation for changing Prime's focus from being a
management company to becoming a service provider. However, Prime did not have
the corporate management expertise in house to effectuate this change; OptiCare
on the other hand had invested in management and the infrastructure necessary
to run a relatively large services company. It was therefore the Prime board's
desire to exit the PPM business to focus on eyecare services, and the OptiCare
transaction was the most attractive means of accomplishing this goal. In
addition, it had been Prime's stated objective to become a public company and
the merger with Saratoga would achieve this objective.
The Prime board did not quantify any individual aspect of its
deliberations, but rather considered the best package it could achieve given
Prime's precarious financial position. The only real negative factor considered
was the transaction risk involved with actually consummating the series of
transactions which involved a number of different parties. However, the Prime
board felt that, on balance, taking this risk was better than staying with
Prime's current position or other alternatives, none of which were as
attractive as the proposed OptiCare and Saratoga transactions.
Representatives of Prime first met with representatives of OptiCare in
November 1998, and the two companies exchanged information about their
operations, business strategies, financial condition, and management. The Prime
board determined that OptiCare's management and systems would be of value to
Prime, and believed that a combination of the two companies could enable Prime
to operate its core businesses profitably in the long run and to meet its
objectives discussed in items (b) and (c) above. The Prime board chose to
proceed with executing the merger agreement because, in its view:
(a) the combination offered Prime shareholders the opportunity to own a
publicly traded stock; and
(b) the transaction was fair and favorable to Prime's shareholders.
The above discussion does not cover everything that the Prime board
considered. In view of the variety of factors considered in evaluating the
mergers, the Prime board did not find it practicable to, and did not quantify
or otherwise assign relative weight to, the specific factors considered in
reaching its determination.
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STRUCTURE OF THE MERGERS AND CONVERSION OF OPTICARE AND PRIME COMMON STOCK
Prime Shellco Merger Corporation, a newly-formed and wholly-owned
subsidiary of Saratoga, will be merged with and into Prime. As a result of the
merger, the separate corporate existence of Prime Shellco will cease and Prime
will survive the merger as a wholly-owned subsidiary of Saratoga.
Thereafter, OptiCare Shellco Merger Corporation, a newly-formed and
wholly-owned subsidiary of Saratoga, will be merged with and into OptiCare. As
a result of the merger, the separate corporate existence of OptiCare Shellco
will cease and OptiCare will survive the merger as a wholly-owned subsidiary of
Saratoga.
Prime. In the mergers, each outstanding share of Prime common stock (other
than shares held by Prime and its subsidiaries) will be converted into the
right to receive 0.3134 share of Saratoga common stock (subject to adjustment,
if any, as described below). Based upon current available information, Prime
stockholders will receive, for each share of Prime common stock, 0.3134 shares
of Saratoga common stock.
The Prime exchange ratio, i.e., the number of shares of Saratoga stock
exchangeable for a single share of Prime common stock, is the quotient of
(a) the number of shares of Saratoga common stock which shall equal
48.755% of the total amount of Saratoga common stock calculated on a
primary basis to be outstanding immediately after the effective time of the
mergers, divided by
(b) the number of outstanding shares of Prime stock calculated on a primary
basis.
In determining the Prime exchange ratio, we will not count as outstanding
Prime shares the number of shares of Prime stock held by dissenting
stockholders of Prime who have demanded cash payment of the fair value of their
Prime shares; likewise, we will not count as outstanding Saratoga shares the
number of shares of Saratoga stock that would otherwise issuable to the Prime
dissenting stockholders or OptiCare dissenting stockholders, if any. All
calculations will be made after giving effect to the reverse split. The Prime
exchange ratio stated above, i.e., 0.3134, may change because of changes in the
numbers determined in clauses (a) and (b) prior to the effective time of the
mergers.
OptiCare. In the mergers, each outstanding share of OptiCare stock (other
than shares held by OptiCare and its subsidiaries) will be converted into the
right to receive 11.7364 shares of Saratoga common stock (subject to
adjustment, if any, as described below). Based upon current available
information, OptiCare stockholders will receive, for each share of OptiCare
stock, 11.7364 shares of Saratoga common stock.
The OptiCare exchange ratio, i.e., the number of shares of Saratoga stock
exchangeable for a single share of OptiCare stock, is the quotient of:
(a) the number of shares of Saratoga common stock which shall equal
48.745% of the total amount of Saratoga common stock calculated on a
primary basis to be outstanding immediately after the effective time of the
mergers, divided by
(b) the number of outstanding shares of OptiCare stock calculated on a
primary basis.
In determining the OptiCare exchange ratio, we will not count as
outstanding OptiCare shares the number of shares of OptiCare stock held by
dissenting stockholders of OptiCare who have demanded cash payment of the fair
value of their OptiCare shares; likewise, we will not count as outstanding
Saratoga shares the number of shares of Saratoga stock that would otherwise
issuable to the OptiCare dissenting stockholders or Prime dissenting
stockholders, if any. All calculations will be made after giving effect to the
reverse split. The OptiCare exchange ratio stated above, i.e., 11.7364, may
change because of changes in the numbers determined in clauses (a) and (b)
prior to the effective time of the mergers.
The number of shares of Saratoga common stock issuable in the mergers will
be proportionately adjusted for any stock split, stock dividend or similar
event with respect to OptiCare stock or Prime common stock or Saratoga common
stock effected between the date of the merger agreement and the closing of the
mergers other than the reverse split.
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No certificate or scrip representing fractional shares of Saratoga's
common stock will be issued in connection with the mergers. Instead OptiCare
and Prime stockholders will receive cash, without interest, in lieu of a
fraction of a share of Saratoga common stock.
EXCHANGE OF OPTICARE AND PRIME STOCK CERTIFICATES FOR SARATOGA STOCK
CERTIFICATES
When the mergers are completed, Saratoga's exchange agent will mail to
OptiCare and Prime stockholders a letter of transmittal and instructions for
use in surrendering OptiCare and Prime stock certificates in exchange for
Saratoga certificates. When the OptiCare and Prime stockholders deliver their
stock certificates to the exchange agent along with an executed letter of
transmittal and any other required documents, their stock certificates will be
canceled, and they will receive Saratoga stock certificates representing the
number of full shares of Saratoga common stock to which they are entitled under
the merger agreement. OptiCare and Prime stockholders will receive payment in
cash, without interest, in lieu of any fractional shares of Saratoga common
stock which would have been otherwise issuable to them in the mergers.
OPTICARE AND PRIME STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES
FOR EXCHANGE UNLESS AND UNTIL THEY RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A
FORM OF LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
OptiCare and Prime stockholders are not entitled to receive any dividends
or other distributions on Saratoga common stock until the mergers are completed
and they have surrendered their stock certificates in exchange for Saratoga
stock certificates. In particular, they will not participate in the spinoffs or
other dispositions of Saratoga Holdings and Saratoga--Texas.
Subject to the effect of applicable laws, promptly following surrender of
OptiCare or Prime stock certificates, as the case may be, and the issuance of
the corresponding Saratoga certificates, OptiCare or Prime stockholders, as the
case may be, will be paid the amount of dividends or other distributions,
without interest, with a record date after the completion of the mergers which
were previously paid with respect to their whole shares of Saratoga common
stock. At the appropriate payment date, OptiCare and Prime stockholders, as the
case may be, will also receive the amount of dividends or other distributions,
without interest, with a record date after the completion of the mergers and a
payment date after they exchange their stock certificates for Saratoga stock
certificates.
Saratoga will only issue OptiCare and Prime stockholders a Saratoga stock
certificate or a check in lieu of a fractional share in the name in which the
surrendered stock certificate is registered. If OptiCare or Prime stockholders
wish to have certificates issued in another name, they must present the
exchange agent with all documents required to show and effect the unrecorded
transfer of ownership and show the payment of any applicable stock transfer
taxes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
The following general discussion summarizes certain material federal
income tax consequences of the mergers. This discussion is based on the
Internal Revenue Code, the related regulations promulgated, existing
administrative interpretations and court decisions, all of which are subject to
change, possibly for retroactive effect. This discussion assumes that OptiCare
and Prime stockholders hold their shares of OptiCare Stock and Prime Stock as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.
This discussion does not address all aspects of federal income taxation that
may be important to stockholders in light of their particular circumstances or
if they are subject to special rules. These special rules include rules
relating to:
o stockholders who are not citizens or residents of the United States
o financial institutions
o tax-exempt organizations
o insurance companies
o dealers in securities
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o stockholders who acquired their shares of stock through the exercise of
options or similar derivative securities or otherwise as compensation.
The obligations of the parties to complete the mergers are not conditioned
on the delivery of an opinion regarding federal income tax consequences of the
mergers. Nevertheless, Saratoga will obtain an opinion from Deloitte & Touche
LLP regarding material federal income tax consequences of the mergers to the
stockholders of Saratoga as well as the tax treatment of the mergers to
Saratoga. Neither Prime nor OptiCare intends to obtain such a tax opinion.
We understand that the mergers will have the federal income tax
consequences discussed below, but only our understanding of the material
federal income tax consequences of the mergers to Saratoga and its stockholders
are based upon the advice of Saratoga's tax advisor. We cannot assure that the
IRS or a court will not adopt contrary positions if the issues are litigated.
Tax Implications to Saratoga Stockholders. Current stockholders of
Saratoga will not recognize gain or loss for federal income tax purposes as a
result of the mergers. See "Special Meeting-- Proposal 2--Reverse Split
Proposal" for a discussion of certain tax effects of the reverse split.
Tax Implications to OptiCare and Prime Stockholders.
o Except as discussed below, current stockholders of OptiCare and Prime
should not recognize gain or loss for federal income tax purposes on the
exchange of their stock for Saratoga common stock in the mergers.
o The aggregate tax basis of the Saratoga common stock received as a
result of the mergers should be the same as the aggregate tax basis in
the stock surrendered in the exchange, reduced by the tax basis of any
shares of stock for which cash is received instead of fractional shares
of Saratoga common stock.
o The holding period of the Saratoga common stock received as a result of
the exchange should include the period during which the stock exchanged
in the merger was held.
o OptiCare and Prime stockholders should recognize gain or loss for
federal income tax purposes with respect to the cash they receive instead
of a fractional share interest in Saratoga common stock.
o The gain or loss will be measured by the difference between the amount
of cash they receive and the portion of the tax basis of their shares of
OptiCare and Prime stock allocable to the shares of stock exchanged for
the fractional share interest.
o This gain or loss will be capital gain or loss and will be a long-term
capital gain or loss if the shares of stock have been held for more than
one year at the time the merger is completed.
Tax Implications to Saratoga, OptiCare and Prime. Saratoga, including its
merger subsidiaries, and each of OptiCare and Prime should not recognize gain
or loss for federal income tax purposes as a result of the mergers.
THE ABOVE DISCUSSION IS ONLY A GENERAL SUMMARY, AND IT IS NOT INTENDED TO
BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OR ANY OTHER TAX CONSEQUENCES OF THE MERGERS. IN ADDITION, THIS
DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE
CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES
NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES
OF THE MERGERS. ACCORDINGLY, STOCKHOLDERS ARE STRONGLY URGED TO CONSULT WITH
THEIR TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN
INCOME OR OTHER TAX CONSEQUENCES OF THE MERGERS.
ACCOUNTING TREATMENT OF THE MERGERS
The Prime acquisition has been accounted for as a reverse acquisition by
Prime of Saratoga at book value with no adjustments reflected to historical
values. The acquisition of OptiCare by Saratoga has been accounted for under
the purchase method of accounting with the excess of purchase price over the
fair value of net assets acquired being recorded as goodwill.
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REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGERS
The mergers are subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, which prevents certain transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and the appropriate waiting periods end or expire. The parties have
filed the required information and materials with the Department of Justice and
the Federal Trade Commission and early termination of the applicable waiting
period has been granted.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the mergers on antitrust grounds either before or
after expiration of the waiting period. Accordingly, at any time before or
after the completion of the mergers, either the Antitrust Division of the
Department of Justice or the Federal Trade Commission could take action under
the antitrust laws. Certain other persons could take action under the antitrust
laws, including seeking to enjoin the mergers. Additionally, at any time before
or after the completion of the mergers, notwithstanding that the applicable
waiting period expired or ended, any state could take action under the
antitrust laws. A challenge to the mergers could be made and if a challenge is
made we may not prevail.
Other regulatory approvals include:
o compliance with applicable state securities laws;
o consents to change of control with respect to two ambulatory surgical
centers in Connecticut;
o consents to change of control with respect to two HMO's in North
Carolina and Texas.
Saratoga is not aware of any other material governmental or regulatory
approval required for completion of the merger, other than the effectiveness of
the registration statement of which this Prospectus/Proxy Statement is a part,
compliance with applicable corporate law of Delaware and Connecticut and
regulatory approvals of the insurance departments of North Carolina and Texas.
The parties are not required to close unless the regulatory conditions to
the completion of the mergers are satisfied.
STOCK EXCHANGE LISTING
It is a condition to the mergers that the shares of Saratoga common stock
to be issued in connection with the mergers be approved for listing on either
the American Stock Exchange or NASDAQ. Saratoga intends to list its securities
on the American Stock Exchange. However, if the Saratoga common stock is not
accepted for listing on either Amex or NASDAQ, the parties intend to have the
Saratoga common stock continue to be traded over the counter and reported on
the OTC Bulletin Board operated by the National Association of Securities
Dealers.
STOCKHOLDERS' APPRAISAL RIGHTS
Saratoga. Stockholders of Saratoga are not entitled to appraisal rights
under the Delaware General Corporation Law in connection with the mergers or
the reverse split.
OptiCare. Holders of OptiCare stock are entitled to relief as dissenting
shareholders under Sections 33-855 through 33-868 of the Connecticut Business
Corporation Act. An OptiCare shareholder will be entitled to such relief,
however, only if he or she complies strictly with all of the procedural and
other requirements of Sections 33-855 through 33-868. The following summary is
qualified in its entirety by reference to Sections 33-855 through 33-868, a
copy of which will be provided to the OptiCare shareholders.
Throughout this section of this proxy statement and prospectus, when we
refer to the Connecticut Business Corporation Act, we mean the Connecticut
Business Corporation Act as in effect on the date of this proxy statement and
prospectus. In accordance with the provisions of Sections 33-855 to 33-872 of
the Connecticut Business Corporation Act, OptiCare shareholders are entitled to
dissent from, and shall have the right to be paid the fair value of all shares
of OptiCare Class A preferred
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stock and OptiCare Class B preferred stock they own in the event of
consummation of the OptiCare merger. The rights of OptiCare shareholders to be
paid the value of their OptiCare stock pursuant to Sections 33-855 to 33-872 of
the Connecticut Business Corporation Act are their exclusive remedy as holders
of such stock with respect to the OptiCare merger, whether or not they proceed
as provided in the statute. We advise all dissenting OptiCare shareholders to
seek independent counsel before exercising their dissenters' rights. This proxy
statement and prospectus constitutes notice to holders of shares of OptiCare's
Class A preferred stock and Class B preferred stock of the availability of
dissenters' rights under Connecticut Business Corporation Act Sections 33-855
to 33-872.
As provided in Connecticut Business Corporation Act Section 33-861(a), any
OptiCare shareholder who wishes to assert dissenters' rights:
o must deliver to OptiCare, before the vote is taken on the OptiCare
merger, written notice of such shareholder's intent to demand payment for
his or her OptiCare stock if the OptiCare merger is consummated; and
o must not vote such shares in favor of the OptiCare merger.
That notice may be addressed to OptiCare's registered agent at its registered
office or to OptiCare or its corporate secretary at the following address: 87
Grandview Avenue, Waterbury, Connecticut 06708. We suggest that OptiCare
shareholders use registered or certified mail, return receipt requested for
this purpose.
AN OPTICARE SHAREHOLDER WHO VOTES IN FAVOR OF THE OPTICARE MERGER MAY NOT
EXERCISE DISSENTERS' RIGHTS.
AN OPTICARE SHAREHOLDER WHO RETURNS A SIGNED PROXY WITHOUT SPECIFYING IN
THE PROXY EITHER A VOTE -AGAINST" APPROVAL OF THE OPTICARE MERGER OR AN
INSTRUCTION TO ABSTAIN FROM VOTING, WILL BE DEEMED TO HAVE VOTED "FOR" APPROVAL
OF THE OPTICARE MERGER, WHICH WILL HAVE THE EFFECT OF WAIVING HIS OR HER
DISSENTERS' RIGHTS. ABSTAINING FROM VOTING OR VOTING "AGAINST" APPROVAL OF THE
OPTICARE MERGER WILL NOT CONSTITUTE A WAIVER OF DISSENTERS' RIGHTS.
A VOTE "AGAINST" THE OPTICARE MERGER WILL NOT, HOWEVER, SATISFY THE
REQUIREMENT THAT A DISSENTING OPTICARE SHAREHOLDER DELIVER HIS OR HER WRITTEN
NOTICE OF INTENT TO DEMAND PAYMENT IF THE OPTICARE MERGER IS CONSUMMATED. IN
ADDITION, A VOTE "AGAINST" APPROVAL OF THE OPTICARE MERGER WILL NOT SATISFY ANY
OTHER NOTICE REQUIREMENT UNDER CONNECTICUT LAW WITH RESPECT TO DISSENTERS'
RIGHTS.
A demand for payment must be executed fully and correctly, as the
shareholder of record's name appears on the share certificate. A beneficial
owner of OptiCare stock who is not the record owner may demand payment with
respect to all (but not less than all) shares held on his or her behalf if the
beneficial owner submits to OptiCare a written consent of the record holder
upon or before asserting dissenter's rights.
As provided in Connecticut Business Corporation Act Section 33-862, if the
OptiCare merger is approved and consummated, OptiCare must deliver a written
dissenters' notice to all of its shareholders who have satisfied the above
described requirements of Connecticut Business Corporation Act Section
33-861(a) no later than ten days after consummation of the OptiCare merger.
That dissenters' notice must:
o state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
o inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
o supply a form for demanding payment that both includes the date of the
first announcement to news media or to shareholders of the terms of the
OptiCare merger and requires that each OptiCare shareholder asserting
dissenters' rights certify whether or not such shareholder acquired
beneficial ownership of his or her OptiCare stock before that date;
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o set a date by which OptiCare must receive the payment demand, which date
may not be fewer than 30 nor more than 60 days after the date OptiCare
delivers the written dissenters' notice; and
o be accompanied by a copy of Connecticut Business Corporation Act
Sections 33-855 to 33-872.
As provided in Connecticut Business Corporation Act Section 33-863(a), an
OptiCare shareholder receiving a dissenters' notice must:
o demand payment;
o certify whether such shareholder acquired beneficial ownership of his or
her OptiCare stock before the date of the first announcement to news
media or to shareholders of the terms of the OptiCare merger as set forth
in the dissenters' notice; and
o deposit the certificate or certificates representing such shareholder's
OptiCare stock in accordance with the terms of the dissenters' notice. AN
OPTICARE SHAREHOLDER WHO DOES NOT DEMAND PAYMENT OR DEPOSIT HIS OR HER
STOCK CERTIFICATES, EACH BY THE DATE SET FORTH IN THE DISSENTERS' NOTICE,
WILL NOT BE ENTITLED TO PAYMENT FOR HIS OR HER OPTICARE STOCK UNDER
CONNECTICUT BUSINESS CORPORATION ACT SECTIONS 33-855 TO 33-872.
Except as provided below, upon receipt of a payment demand, OptiCare will
pay each OptiCare shareholder who makes a proper demand for payment pursuant to
Connecticut Business Corporation Act Section 33-863(a) the amount it estimates
to be the fair value of such shareholder's OptiCare stock, plus accrued
interest, as provided in Connecticut Business Corporation Act Section
33-865(a). That payment must accompanied by:
o OptiCare's balance sheet as of the end of a fiscal year ending not more
than sixteen months before the date of payment, an income statement for
that year and a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
o a statement of OptiCare's estimate of the fair value of the shares;
o an explanation of how the interest was calculated;
o a statement of the OptiCare shareholder's right to demand payment under
Connecticut Business Corporation Act Section 33-868; and
o a copy of Connecticut Business Corporation Act Sections 33-855 to
33-872.
Under Connecticut Business Corporation Act Section 33-867(a), OptiCare may
elect to withhold payment required by Connecticut Business Corporation Act
Section 33-865 from an OptiCare shareholder, unless the shareholder was the
beneficial owner of shares before the date of the first announcement to news
media or to shareholders of the terms of the OptiCare merger. If OptiCare
elects to withhold payment under Connecticut Business Corporation Act Section
33-867(a), after the OptiCare merger, it must estimate the fair value of the
shares, plus accrued interest, and must pay that amount to each OptiCare
shareholder who agrees to accept it in full satisfaction of the shareholder's
demand. OptiCare must send with its offer a statement of OptiCare's estimate of
the fair value of the shares, an explanation of how OptiCare calculated
interest and a statement of the shareholder's right to demand payment under
Connecticut Business Corporation Act Section 33-868.
Under Connecticut Business Corporation Act Section 33-868, a dissenting
OptiCare shareholder may notify OptiCare in writing of such shareholder's own
estimate of the fair value of his or her OptiCare stock and the amount of
interest due, and demand payment of his or her estimate, less any payment
OptiCare makes under Connecticut Business Corporation Act Section 33-865, if:
o such OptiCare shareholder believes that the amount paid under
Connecticut Business Corporation Act Section 33-865 is less than the fair
value of such shareholder's OptiCare stock or that the interest due is
incorrectly calculated;
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o OptiCare fails to make payment under Connecticut Business Corporation
Act Section 33-865 within 60 days after the date set for such
shareholder's demand payment; or
o OptiCare fails to close the OptiCare merger and does not return the
deposited certificates or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding
payment.
A dissenting OptiCare shareholder will waive his or her right to demand
payment under Connecticut Business Corporation Act Section 33-868 if such
shareholder does not notify OptiCare of his or her demand in writing within 30
days after OptiCare makes payment for such shareholder's shares.
Under the Connecticut Business Corporation Act Section 33-871(a) and (b),
if a dissenting OptiCare shareholder's demand for payment under Connecticut
Business Corporation Act Section 33-868 remains unsettled, OptiCare must
commence a proceeding within 60 days after receipt of such shareholder's demand
for payment and must petition the superior court for the judicial district
where its registered office in the State of Connecticut is located to determine
the fair value of such shareholder's OptiCare stock and accrued interest. If
OptiCare fails to timely commence such proceeding, it must pay each dissenting
OptiCare shareholder whose demand remains unsettled the amount demanded. All
dissenting OptiCare shareholders making such demand for payment as described
above, whose demands remain unsettled, shall be made parties to the proceeding,
and all parties must be served with a copy of the petition. Dissenting OptiCare
shareholders who do not reside in Connecticut may be served by registered or
certified mail or by publication as provided by law. The jurisdiction of the
court is plenary and exclusive. The court may, but need not, appoint one or
more appraisers to receive evidence and recommend a decision on the question of
fair value. If appointed, the appraisers will have the powers described in the
order appointing them, or in any amendment to it. The dissenting OptiCare
shareholders will be entitled to the same discovery rights as parties in other
civil proceedings. Each OptiCare shareholder made a party to the proceeding
will be entitled to judgment for the amount, if any, by which the court finds
the fair value of such shareholder's OptiCare stock, plus interest, exceeds the
amount paid by OptiCare.
The costs and expenses, including the reasonable compensation and expenses
of court-appointed appraisers, of any such proceeding will be determined by the
court and will be assessed against OptiCare, except that the court may assess
costs against all or some OptiCare dissenting shareholders, in amounts the
court finds equitable, to the extent the court finds that they acted
arbitrarily, vexatiously or not in good faith in demanding payment under
Connecticut Business Corporation Act Section 33-868. The court may also assess
the fees and expenses of counsel and experts employed by any party, in amounts
the court finds equitable:
o against OptiCare in favor of any or all dissenting OptiCare
shareholders, if the court finds that OptiCare failed to substantially
comply with the requirements of Connecticut Business Corporation Act
Sections 33-860 to 33-868, inclusive, or
o against either OptiCare or a dissenting OptiCare shareholder, in favor
of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to rights provided by Connecticut Business
Corporation Act Sections 33-855 to 33-872, inclusive.
If the court finds that the services of counsel for any dissenting OptiCare
shareholder were of substantial benefit to other dissenting OptiCare
shareholders similarly situated, and that such fees should not be assessed
against OptiCare, the court may award to those counsel reasonable fees to be
paid out of the amounts awarded to the dissenting OptiCare shareholders who
were benefitted.
The foregoing is only a summary of the dissenters' rights of holders of
OptiCare stock. Any OptiCare shareholder who intends to exercise dissenters'
rights should carefully review the text of the applicable provisions of the
Connecticut Business Corporation Act, and should also consult with his or her
attorney. THE FAILURE OF A HOLDER OF OPTICARE STOCK TO FOLLOW PRECISELY THE
PROCEDURES SUMMARIZED ABOVE AND SET FORTH IN THE CONNECTICUT BUSINESS
CORPORATION ACT MAY RESULT IN LOSS OF DISSENTERS' RIGHTS.
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HOLDERS OF SHARES OF OPTICARE STOCK CONSIDERING DEMANDING THE PURCHASE OF
THEIR SHARES AT FAIR VALUE SHOULD KEEP IN MIND THAT THE FAIR VALUE OF THEIR
SHARES DETERMINED UNDER CONNECTICUT BUSINESS CORPORATION ACT SECTIONS 33-855 TO
33-872 COULD BE MORE, THE SAME, OR LESS THAN THE MERGER CONSIDERATION THEY ARE
ENTITLED TO RECEIVE PURSUANT TO THE OPTICARE MERGER IF THEY DO NOT EXERCISE
DISSENTERS' RIGHTS. IN ADDITION, SUCH OPTICARE SHAREHOLDERS SHOULD CONSIDER THE
FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING DISSENTERS' APPRAISAL RIGHTS.
Completion of the merger is subject to a number of conditions including
the requirement that shares of OptiCare stock with respect to which dissenters'
rights have been asserted and perfected under Section 33-855 to 33-872 of the
Connecticut Business Corporation Act not constitute more than 5% of the issued
and outstanding shares of OptiCare stock. See "Summary of the Merger
Agreement--Conditions to Completion of the Mergers."
Prime. Under Delaware law, any Prime stockholder who does not wish to
accept the merger consideration to be paid to Prime stockholders pursuant to
the merger agreement may dissent from the Prime Merger and elect to have the
fair value of his shares of Prime common stock judicially determined and paid
in cash, provided that he complies with the provisions of Delaware law.
The following is a brief summary of the material terms of the statutory
procedures to be followed by a Prime stockholder in order to dissent from the
merger and perfect appraisal rights under the Delaware law. WE URGE YOU TO READ
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW IN ITS ENTIRETY.
If any Prime stockholder elects to exercise his/her right to dissent from
the merger and demand appraisal, such stockholder must satisfy each of the
following instructions:
o Deliver a written demand for appraisal to Prime on or before the vote is
taken at the Prime special meeting. This written demand for appraisal
must be separate from your proxy or vote against the merger agreement.
o Not vote in favor of the merger agreement. If you vote in favor of the
merger agreement, by proxy or in person, if you return a signed proxy and
fail to vote against approval or if you abstain from voting, you will
have waived your right of appraisal, even if you previously filed a
written demand for appraisal.
o Continuously hold such shares of Prime common stock from the date of the
making of the demand through the closing of the Prime Merger. You should
read the paragraphs below for more details on making a demand for
appraisal.
If a Prime stockholder fails to comply with any of these conditions and
the Prime Merger becomes effective, such stockholder will only be entitled to
receive the Prime merger consideration provided in the merger agreement; i.e.,
shares of Saratoga common stock.
All written demands for appraisal should be addressed to: Gregg Luchs,
Esq., PrimeVision Health, Inc., 150 Fayetteville Street Mall--Suite 1000,
Raleigh, N.C. 27601 before the taking of the vote concerning the merger
agreement at the Prime special meeting, and should be executed by, or on behalf
of, the stockholder of record. Such demand must reasonably inform Prime of the
identity of the stockholder and that such stockholder is thereby demanding
appraisal of his shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL MUST BE EXECUTED BY OR FOR THE
STOCKHOLDER OF RECORD WHO HELD SUCH SHARES ON THE DATE OF MAKING SUCH DEMAND,
AS SUCH STOCKHOLDER'S NAME APPEARS ON HIS CERTIFICATE(S) AND CANNOT BE MADE BY
THE BENEFICIAL OWNER IF HE/SHE DOES NOT ALSO HOLD THE SHARES OF RECORD. THE
BENEFICIAL HOLDER MUST, IN SUCH CASE, HAVE THE REGISTERED OWNER SUBMIT THE
REQUIRED DEMAND IN RESPECT OF SUCH SHARES.
Within 10 days after the closing of the merger, Prime (as the surviving
corporation in the merger) must give written notice that the merger has become
effective to each stockholder who files a demand for appraisal and who did not
vote in favor of the merger agreement. Within 120 days after the closing of the
merger, either Prime, or any holder of shares of Prime common stock who has
complied with
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the requirements of Section 262 of the Delaware General Corporation Law, may
file a petition in the Delaware court of chancery demanding a determination of
the value of the shares of Prime common stock held by all stockholders entitled
to appraisal. Prime does not presently intend to file such a petition. Inasmuch
as Prime has no obligation to file such a petition, the failure of a
stockholder to do so within the period specified could nullify such
stockholder's previous written demands for appraisal. In any event, at any time
within 60 days after the closing of the merger or at any time thereafter with
the written consent of Prime, any stockholder who has demanded appraisal has
the right to withdraw the demand and to accept payment of the merger
consideration provided in the merger agreement.
Within 120 days after the closing of the merger, any stockholder who has
complied with the provisions of Section 262 of the Delaware General Corporation
Law to that point in time will be entitled to receive from Prime as the
surviving corporation, upon written request, a statement setting forth the
aggregate number of shares not voted in favor of the merger agreement and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. After the merger, Prime must mail such
statement to the stockholder within 10 days of receipt of such request.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to Prime, Prime will then be obligated within 20 days to
provide the court of chancery with a duly verified list containing the names
and addresses of all Prime stockholders who have demanded an appraisal of their
shares and with whom agreement as to the value of such shares has not been
reached. After notice to such stockholders, the Delaware court of chancery is
empowered to conduct a hearing upon the petition to determine those
stockholders who have complied with Section 262 of the Delaware General
Corporation Law and who have become entitled to appraisal rights under that
section. The court of chancery may require the stockholders who demanded
payment for their shares to submit their stock certificates to the registry in
chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the court of chancery
may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to an appraisal, the
court of chancery will appraise the shares of Prime common stock, determining
their fair value exclusive of any element of value arising from the
accomplishment or expectation of the Prime merger. When the value is so
determined, the court of chancery will direct the payment by Prime of such
value, with interest thereon, simply or compound, if the court of chancery so
determines, to the stockholders entitled to receive the same, upon surrender to
Prime by such stockholders of the certificates representing such Prime common
stock.
THE FAIR VALUE OF THEIR SHARES OF PRIME COMMON STOCK DETERMINED UNDER
SECTION 262 OF THE DELAWARE CORPORATION LAW COULD BE MORE THAN, THE SAME AS, OR
LESS THAN THE MERGER CONSIDERATION THAT PRIME STOCKHOLDERS ARE TO RECEIVE
PURSUANT TO THE MERGER AGREEMENT IF THEY DO NOT SEEK APPRAISAL OF THEIR SHARES
OF PRIME COMMON STOCK. PRIME STOCKHOLDERS SHOULD ALSO CONSIDER THE FEDERAL TAX
CONSEQUENCES OF EXERCISING DISSENTERS' APPRAISAL RIGHTS.
Costs of the appraisal proceeding may be assessed against Prime and the
stockholders participating in the appraisal proceeding by the court of
chancery, as the Delaware court deems equitable under the circumstances. Upon
application of any stockholder, the court of chancery may determine the amount
of interest, if any, to be paid upon the value of the Prime common stock owned
by stockholders entitled to the payment of interest. Upon application of a
stockholder, the court of chancery may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable counsel fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal. Any stockholder who has demanded appraisal rights will
not, after the closing of the merger, be entitled to:
o vote the Prime common stock subject to such demand for any purpose;
o receive the Saratoga common stock subject to such demand for any
purpose;
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o receive payment of dividends or any other distribution with respect to
such shares other than dividends or distributions, if any, payable to
holders of record as of a record date prior to the effective time of the
merger;
o receive the payment of the consideration provided for in the merger
agreement.
However, if no petition for an appraisal is filed within 120 days after
the closing of the merger or if such stockholder delivers to Prime a written
withdrawal of his demand for an appraisal and an acceptance of the merger,
either within 60 days after the closing of the merger, or thereafter with the
written approval of Prime, then the right of such stockholder to an appraisal
will cease. Notwithstanding the foregoing, no appraisal proceeding in the court
of chancery will be dismissed as to any stockholder without the approval of the
court, and such approval may be conditioned upon such terms as the court deems
just.
FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL CAUSE THE
STOCKHOLDER TO LOSE HIS/HER DISSENTERS' RIGHTS. CONSEQUENTLY, ANY PRIME
STOCKHOLDER WHO DESIRES TO EXERCISE DISSENTERS' RIGHTS IS URGED TO CONSULT A
LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
Completion of the merger is subject to a number of conditions including
the requirement that shares of Prime common stock with respect to which
dissenters' rights have been asserted and perfected under Section 262 of the
Delaware General Corporation Law shall not constitute more than 5% of the
issued and outstanding shares of Prime common stock. See "Summary of the Merger
Agreement--Conditions to Completion of the Mergers."
BOARD OF DIRECTORS AND MANAGEMENT OF SARATOGA FOLLOWING THE MERGERS
The merger agreement specifies certain persons who shall be directors and
officers of the combined company following the mergers. See "Management of the
Combined Company following closing of the mergers."
OPERATIONS AFTER THE MERGERS
Following the mergers, each of OptiCare and Prime will continue its
operations as a wholly-owned subsidiary of Saratoga. The stockholders of
OptiCare and Prime will become stockholders of Saratoga, and their rights as
stockholders will be governed by Saratoga's certificate of incorporation, the
Saratoga By-laws and the laws of the State of Delaware. See "Comparison of
Stockholder Rights." It is the intention of the parties that the management of
OptiCare prior to the mergers will control the corporate activities of Saratoga
after the mergers. This decision was in keeping with the Prime board's decision
for proceeding with the merger, as one of the attractions of OptiCare was their
strong strategic, corporate and financial management team, together with
Prime's strong operational management team.
DISPOSAL OF PRIME'S OPHTHALMOLOGY OPERATIONS
Following the Prime board's decision to reorganize and dispose of its
ophthalmology operations, management of Prime entered into discussions with the
practices with which they had entered into administrative services agreements.
Based on discussions with these individual practices Prime negotiated a
transaction with each practice whereby the physicians would take back
substantially all of the assets and liabilities of their practice and take over
management and administration of their practice. A majority of the practices
desired to enter into services (HSO) agreements with Prime, but some practices
did not. As of June 21, 1999, Prime has either terminated its relationship with
practices pursuant to the terms of their respective administrative services
agreements, or signed or negotiated transition agreements with all but one of
the Prime practices. It is anticipated that all the transition agreements will
be signed prior to the closing of the mergers."
EMPLOYMENT AGREEMENTS
As a condition of the mergers, Saratoga shall enter into employment
agreements with (i) Dean Yimoyines, M.D. as Chairman, President and Chief
Executive Officer and (ii) management personnel
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who report directly to Dr. Yimoyines, including Drs. Barker and Harrold,
containing such terms and conditions as shall be approved by OptiCare, Prime
and Saratoga. Also, all existing employment agreements between (i) OptiCare or
any subsidiary of OptiCare and their respective employees and (ii) Prime or any
subsidiary of Prime and their respective employees (except for Drs. Barker and
Harrold who will enter into new agreements) shall continue in accordance with
their terms until replaced with new agreements. See "Manangement of the
Combined Company Following Closing of the Mergers -- Employment Agreements for
Certain Executive Officers".
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF SARATOGA, OPTICARE AND PRIME
The shares of Saratoga common stock to be issued in the mergers will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares of Saratoga common stock issued to
any person who is an affiliate of Saratoga, OptiCare or Prime. Persons who may
be deemed to be affiliates include individuals or entities that control, are
controlled by, or under common control of any of them and may include some of
their officers and directors, as well as their principal stockholders.
Affiliates may not sell their shares of Saratoga Common Stock acquired in the
merger, except pursuant to
(1) an effective registration statement under the Securities Act covering
the resale of those shares,
(2) an exemption under paragraph (d) of Rule 145 under the Securities Act,
or
(3) any other applicable exemption under the Securities Act. Certain
holders of Saratoga common stock will also be subject to contractual
restrictions on sales of their shares. See "Related Agreements--Lock-up
Agreements."
DISPOSITION OF SARATOGA'S SUBSIDIARIES
As a condition to the mergers, Saratoga is required to dispose of the
stock of all of its subsidiary corporations, other than OptiCare Shellco and
Prime Shellco, and shall have no liabilities or obligations with respect to
such subsidiaries.
In 1998, Saratoga commenced operation of a consumer finance business
through a newly organized subsidiary, Saratoga Holdings I, Inc., a Texas
corporation ("Saratoga Holdings"), by the acquisition of a portfolio of
consumer debt receivables at a deep discount. Saratoga Holdings has filed a
registration statement on Form SB-2, which became effective on May 14, 1999, to
register up to 3,465,292 shares (approximately 90%) of Saratoga Holdings's
outstanding common stock, to effect a proposed spinoff of Saratoga Holdings to
the stockholders of Saratoga. The proposed spinoff is a part of Saratoga's
strategy of enhancing stockholder value and would be necessary if the mergers
come to fruition. The unregistered shares of Saratoga Holdings will be retained
by Saratoga-Texas.
A condition of the merger agreement is that Saratoga at the time of
closing shall generally have no assets or liabilities, other than cash in the
amount of approximately $150,000. Saratoga has conducted its business through
three subsidiaries (Saratoga-Texas, Lobo Operations, Inc. and Lobo Energy,
Inc., in addition to its newly formed subsidiary, Saratoga Holdings I, Inc.
Each of these subsidiaries is currently wholly-owned by Saratoga.
To satisfy the condition of the merger agreement described above, Saratoga
proposes to make a contribution of all of the stock of Lobo Operating and Lobo
Energy to Saratoga-Texas and, separately, to cause Saratoga-Texas to make a
cash distribution to Saratoga of $150,000. In addition, if the registered
distribution of Saratoga Holdings has not occurred as of the effective time of
the mergers, Saratoga will also make a contribution of all of the outstanding
shares of Saratoga Holdings to Saratoga-Texas.
Following the contributions described above, but before the effective
time, Saratoga will make a pro rata distribution of the stock of Saratoga-Texas
to each of the then existing shareholders of Saratoga. This distribution will
be made on the basis of one share of Saratoga-Texas for each outstanding share
of Saratoga and will represent all of the outstanding stock of Saratoga-Texas.
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As a result of the above, Saratoga-Texas will have the same assets and
liabilities (other than the $150,000 to be held by Saratoga), the same
shareholder base and the same number of shares of stock outstanding as shall
exist for Saratoga immediately before the effective time. Moreover,
Saratoga-Texas will continue the business that has been conducted by Saratoga
prior to the mergers.
Following the effective time, Saratoga-Texas' class of common stock,
pursuant to Rule 12g-3 under the Exchange Act, will be deemed to continue to be
registered under Section 12(g) of the Exchange Act. Accordingly, Saratoga-Texas
will continue to be subject to the periodic reporting requirements and other
applicable provisions of the Exchange Act, in the same manner as has been
applicable to Saratoga.
Inasmuch as the disposition of the subsidiaries of Saratoga will occur
prior to the mergers, the Prime and OptiCare stockholders will not participate
in any such distribution of the stock.
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SUMMARY OF THE MERGER AGREEMENT
This section of the Proxy Statement/Prospectus describes the merger
agreement. While we believe that the description covers the material terms of
the merger agreement, this summary may not contain all of the information that
may be important to you. The merger agreement is attached to this Proxy
Statement/Prospectus as Annex A, and we urge you to read it carefully.
The parties to the merger agreement are OptiCare, Prime (collectively, the
"Constituent Companies"), Saratoga, and two wholly-owned subsidiaries of
Saratoga, OptiCare Shellco Merger Corporation, a Delaware corporation
("OptiCare Shellco"), and PrimeVision Shellco Merger Corporation, a Delaware
corporation ("Prime Shellco"). Prime Shellco will be merged with and into Prime
and Prime will be the surviving corporation in that merger. Thereafter,
OptiCare Shellco will be merged with and into OptiCare, and OptiCare will be
the surviving corporation in that merger. Upon closing of the mergers, OptiCare
and Prime will become wholly-owned subsidiaries of Saratoga.
REPRESENTATIONS AND WARRANTIES
Each of the parties to the merger agreement made to the others a number of
representations and warranties regarding aspects of their respective
businesses, financial conditions, structures and other facts pertinent to the
mergers. (At the present time, OptiCare Shellco and Prime Shellco are
"corporate shells", with no material assets or liabilities.) Such
representations and warranties include:
o Corporate organization and qualifications to do business
o Authorization of merger agreement; absence of conflict with other
obligations
o Capitalization; absence of other obligations concerning capital stock
o Financial statements
o Books and records
o Title to properties; encumbrances
o Condition and sufficiency of assets
o Absence of undisclosed liabilities
o Taxes
o Retirement plans, welfare and other employee benefit plans
o Compliance with legal requirements; governmental authorizations
o Legal proceedings; court and governmental orders
o Absence of changes, amendments, other actions and events since December
31, 1998
o Material contracts; compliance and absence of defaults
o Insurance
o Environmental matters
o Employees; proprietary rights of others
o Labor relations; compliance and absence of major events
o Intellectual property used in business
o Absence of prohibited payments
o Relationships with related or affiliated persons
o Brokers or finders
o SEC filings of Saratoga
o Disclosure of all material facts in disclosure schedules
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CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGERS
Until completion of the mergers, unless otherwise agreed, the various
parties agree to:
o Conduct their respective businesses in the ordinary course
o Preserve their respective capitalizations, voting stock, assets and
agreements
o Maintain existing employee agreements, benefit plans and tax or
accounting methods
o Refrain from sale or change of stock, from entering into new debt, from
settling any claim, action or proceeding except in the ordinary course
of business, and from taking any action causing representations and
warranties to become untrue or conditions to the mergers to become
unsatisfied
o As to Prime and OptiCare, to take any action required under the merger
agreement; and to refrain from any activity prohibited by it
THE UNDERTAKINGS RELATED TO THE CONDUCT OF THE RESPECTIVE BUSINESSES OF
THE PARTIES SET FORTH IN THE MERGER AGREEMENT ARE COMPLEX AND DIFFICULT TO
SUMMARIZE. ACCORDINGLY, WE URGE YOU TO READ ARTICLE IV OF THE MERGER AGREEMENT
ENTITLED "CONDUCT OF BUSINESS PENDING THE MERGERS."
ADDITIONAL AGREEMENTS
The parties have agreed to additional undertakings and actions, including
the following:
o All parties agreed to provide the other parties access to their
respective properties, books, contracts and the like, to enable each
other party to review the same.
o Saratoga agreed to prepare and file a registration statement covering
the common stock to be issued in the mergers, and OptiCare and Prime
agreed to provide information about their respective businesses,
financial condition and operations needed for the registration
statement to be declared effective.
o Except for the officers and employees of Saratoga (who shall resign),
the parties agreed to continue after the Mergers their employment
relationships and benefit plans.
o OptiCare and Prime are required to modify and extend certain employment
agreements with certain senior executives.
o All parties agreed to perpetuate existing indemnification and
directors' and officers' liability insurance arrangements for six years
following the mergers; in addition, Saratoga agreed to amend its
certificate of incorporation to require indemnification of officers and
directors to the fullest extent allowed by law.
o All parties agreed to defend vigorously any action, suit, proceeding or
investigation related to the mergers or the merger agreement.
o All parties agreed to file the appropriate disclosures required under
the Hart-Scott-Rodino Act in connection with the mergers.
o All parties agreed to do or take all necessary acts or action with the
SEC, the Federal Trade Commission, the Antitrust Division of the
Department of Justice, any third party or governmental body in order to
carry out the intention of the merger agreement and to effect the
mergers.
o OptiCare and Prime agreed to confer at reasonably regular intervals on
operational matters.
o All parties agreed, if requested by another party, to restructure the
Prime Merger into a forward subsidiary merger of Prime into Prime
Shellco or the OptiCare Merger into either a merger of Saratoga into
OptiCare or of a forward or reverse subsidiary merger of OptiCare into
or with another subsidiary of Saratoga as required.
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o All parties agreed to take such steps as shall be appropriate to comply
with any applicable state takeover law
o All parties agreed to obtain from each "affiliate" (as defined in of
SEC Rule 145) of Prime or OptiCare an appropriate undertaking
restricting disposition of shares of the combined company received in
the Mergers
o All parties agreed to obtain consent letters from the independent
auditors and accountants of each of the principal parties
o Saratoga agreed to vote the shares of OptiCare Shellco and Prime
Shellco in favor of the OptiCare Merger and Prime Merger, respectively
o All parties agreed to cause their respective officers and directors to
act in favor of the mergers
o All parties agreed to conduct meetings of stockholders of Prime,
OptiCare and Saratoga
THE UNDERTAKINGS RELATED TO THE FURTHER ACTIONS THE PARTIES WILL TAKE
CONCERNING THE MERGER AGREEMENT ARE COMPLICATED AND NOT EASY TO SUMMARIZE.
ACCORDINGLY, YOU SHOULD READ CAREFULLY ARTICLE V OF THE MERGER AGREEMENT
ENTITLED "ADDITIONAL AGREEMENTS".
CONDITIONS TO COMPLETION OF THE MERGERS
The obligations of Saratoga and the Constituent Companies to complete the
mergers and the other transactions contemplated by the merger agreement are
subject to the satisfaction, or waiver, of each of the following conditions
before completion of the mergers:
o The merger agreement and the mergers and other transactions must be
approved by the requisite vote of each party's stockholders.
o All applicable waiting periods under applicable antitrust laws must
have expired or been terminated.
o No regulation or order may be in effect which would make the mergers
illegal or which would otherwise prohibit completion of the mergers
substantially on the terms contemplated by the merger agreement.
o All approvals, consents or authorizations of or by any administrative
body, required in connection with the merger agreement or related
transactions, must be obtained unless the absence of any such consent
or order would not materially harm the respective businesses of the
parties following the mergers.
o Each of the parties must have completed all actions that it undertook
to complete prior to the mergers, and their respective representations
and warranties contained in the merger agreement must be correct.
o The shares of Saratoga common stock to be issued to the securities
holders of OptiCare and Prime upon closing of the mergers must have
been approved for listing on either the American Stock Exchange or
NASDAQ.
o No material adverse change in the business, financial condition,
operating results, assets or customer base of OptiCare or Prime must
have occurred prior to the date of the mergers.
o Saratoga must have disposed of the capital stock of its two
subsidiaries (Saratoga-Texas and Saratoga Holdings) and its other
assets, other than approximately $150,000 in cash.
o Saratoga must have authorized the change of its corporate name as
agreed among OptiCare, Prime and Saratoga.
o Messrs. Yimoyines, Ditman, Franklin and either Dr. Barker or Dr.
Harrold, as well as three other persons as agreed between OptiCare and
Prime, must have been elected as the new board of directors of
Saratoga.
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o Saratoga must have entered into employment agreement with Dr. Yimoyines
and management personnel reporting directly to him and all existing
employment agreements of Prime (except for Drs. Harrold and Barker) and
OptiCare must continue in accordance with their terms or be replaced
with new agreements acceptable to the Constituent Companies.
o Saratoga, Prime and OptiCare must have audited financial statements,
for the year ending December 31, 1998, which must be satisfactory to
each of the other parties.
o The shares of common stock of Saratoga to be issued to the former
securities holders of OptiCare and Prime must be registered with the
SEC pursuant to the appropriate registration statement.
o All warrants to purchase shares of the common stock of Prime must have
been converted into shares of Prime common stock or otherwise disposed
of prior to the date of the mergers
o Saratoga must have adopted a new stock option plan in a form acceptable
to OptiCare and Prime.
o The credit facility between Prime and Bank Austria Credit Anstalt (or
its affiliate) must have been revised to reduce the outstanding
indebtedness to $25 million, and in certain other respects.
o The promissory notes issued by Prime in connection with the acquisition
of various ophthalmology practices must have been revised as provided
in the merger agreement and an HSO agreement must be in place with each
such practice; the aggregate principal amount of the notes must be
reduced from $21,000,000 to $4,000,000.
o Officers, directors, 10% stockholders and specified other stockholders
of Saratoga following the Mergers must have entered into lock-up
agreements with Saratoga
o Either OptiCare or Prime may elect not to proceed with its Merger if
more than 5% of the outstanding shares of any class of capital stock of
each of OptiCare, Prime or Saratoga has valid and perfected dissenters'
rights in connection with the contemplated transactions.
o Saratoga shall have authorized a reverse stock split in a ratio agreed
to among OptiCare, Prime and Saratoga, and its capital stock shall be
as agreed among such parties.
o Prime must have entered into HSO agreements acceptable to OptiCare with
its physician practices
o An amendment to the certificate of incorporation of OptiCare shall have
been filed with the Secretary of State of Connecticut providing that
the OptiCare Merger will not constitute a liquidation, dissolution or
winding up and, as such, will not entitle stockholders to receive any
cash, securities or other property other than the consideration
provided for in the OptiCare Merger, i.e., Saratoga common stock.
o The stockholders (prior to the mergers) of Saratoga will own, following
the closing of the mergers, 2.5% of its common stock, as calculated in
accordance with the merger agreement.
o Saratoga shall have disposed of the stock of, and shall have no
liabilities or obligations with respect to, all its subsidiary
corporations other than OptiCare Shellco and Prime Shellco.
o The respective Certificates of Merger shall provide that the OptiCare
Merger and the Prime Merger shall be effective at the same time
o Certain securities holders of OptiCare must agree to revisions of
certain stockholders' agreements to permit the mergers, and the
revisions must be acceptable to Prime.
o Steven B. Waite and Prime must make a written agreement providing for
the termination of his employment and of his options to purchase Prime
shares, and for lock-up of the common stock of Saratoga that Mr. Waite
may receive in the mergers.
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o OptiCare shall have received lien searches on Prime and its
subsidiaries, showing no material encumbrances.
o The Settlement Agreement of April 9, 1999, concerning litigation
brought by Drs. Harrold and Barker and others will have been signed and
performed, including all agreements, documents and actions set forth in
such agreement, and Drs. Barker and Harrold and the other plaintiffs
shall have executed and delivered all documents needed to completely
terminate the litigation. See "Related Agreements--Settlement
Agreement" below.
o The pending Request for Declaratory Ruling from the North Carolina
State Board of Examiners in Optometry filed by Drs. Barker and Harrold
regarding Prime shall have been finally resolved and disposed of in a
manner satisfactory to Prime and OptiCare.
o The parties, and each of them, must have delivered at Closing the
documents referred to in the merger agreement.
THE CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH PARTY TO EFFECT THE
MERGERS SET FORTH IN ARTICLE VI OF THE MERGER AGREEMENT ARE COMPLICATED AND NOT
EASILY SUMMARIZED. ACCORDINGLY, WE URGE YOU TO READ CAREFULLY ARTICLE VI OF THE
MERGER AGREEMENT ENTITLED "CONDITIONS PRECEDENT."
TREATMENT OF OPTICARE AND PRIME STOCK OPTIONS AND WARRANTS
At or prior to the effective time of the mergers, each of Saratoga, Prime
and OptiCare shall take all action necessary to cause the assumption by
Saratoga of, or the reissuance by Saratoga of substitutes for, all of the
following which remain outstanding as of the effective time of the mergers:
(a) each outstanding option to purchase OptiCare common stock and
Prime common stock, whether vested or unvested, which has been
issued under OptiCare's stock option plans and Prime's stock
option plans;
(b) options to purchase OptiCare common stock and Prime common stock
which have been issued pursuant to option agreements outside of
the Stock Option Plans, with certain exceptions described below;
and
(c) the warrants to purchase OptiCare and Prime stock issued
pursuant to warrant agreements.
The exceptions referred to in item (b) above are the stock options of
Steven Waite, which have been terminated pursuant to his severance agreement
dated March 31, 1999, and options of persons which will expire prior to closing
of the mergers as a result of the termination of their employment.
To the fullest extent permitted under applicable law and the applicable
stock option agreements, stock option plans and warrant agreements, each of the
outstanding options and outstanding warrants (other than the Prime warrants
held by Marlin Capital, L.P., which are discussed in "Related
Agreements--Treatment of Prime Class A Preferred Stock and Warrants") shall be
exchanged or substituted automatically (without any action on the part of the
option holders or warrant holders) into an option or warrant to purchase shares
of Saratoga common stock as of the effective time of the mergers.
The principal terms of the assumed or substituted options and warrants
shall be as follows:
o The number of shares of Saratoga common stock acquirable under an
assumed or substituted warrant or option shall be the same number of
shares of Saratoga common stock that the holder would have received if
he/she had exercised the option or warrant immediately before the
effective time of the mergers.
o The exercise price per share of Saratoga common stock acquirable under
the outstanding options or outstanding warrants after the effective
time shall equal:
(a) the aggregate exercise price for the shares of OptiCare stock or
Prime stock otherwise purchasable pursuant to such outstanding option
or outstanding warrant, divided by
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(b) the number of shares of Saratoga common stock (including any
fraction of a share) purchasable pursuant to such outstanding option
or outstanding warrant.
o Only whole shares of Saratoga common stock shall be issued upon
exercise of any outstanding option or outstanding warrant, and no
certificates or scrip representing fractional shares of Saratoga common
stock, and no cash in lieu of fractional shares, shall be issued upon
such exercise. Fractional shares of Saratoga common stock which a
holder of any outstanding option or outstanding warrant would otherwise
be entitled to receive shall be rounded off to the nearest whole share.
o Unless the terms of the outstanding options and outstanding warrants
provide otherwise, the assumption and substitution of options and
warrants shall not give the holders of such options and warrants
additional benefits or additional vesting rights which they did not
have immediately prior to the effective time of the mergers, or relieve
the option and warrant holders of any obligations or restrictions
applicable to their options and warrants or the shares obtainable upon
exercise of their options and warrants.
As of June 18, 1999, OptiCare had options to purchase an aggregate of
45,497 shares of common stock outstanding and warrants to purchase an aggregate
of 61,022 shares of Class B preferred stock outstanding, which will be
exchanged in the mergers for options to purchase an aggregate of approximately
533,971 shares of combined company common stock and warrants to purchase an
aggregate of approximately 716,179 shares of combined company common stock.
As of June 18, 1999, Prime had options to purchase an aggregate of 459,500
shares of common stock outstanding and warrants to purchase an aggregate of
220,281 shares of common stock outstanding (exclusive of the warrants held by
Marlin Capital, which are described below), which will be exchanged in the
mergers for options to purchase an aggregate of approximately 144,007 shares of
combined company common stock and warrants to purchase an aggregate of
approximately 69,036 shares of combined company common stock.
Saratoga intends to file a registration statement on Form S-8 or a
successor form under the Securities Act with respect to the shares of Saratoga
common stock issuable under the outstanding options and outstanding warrants,
to the extent that Form S-8 (or a successor form) is available to register the
outstanding options and outstanding warrants and the underlying shares, and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as the outstanding
options and outstanding warrants remain outstanding.
FRACTIONAL SARATOGA SHARES
No certificates or scrip representing fractional shares of Saratoga common
stock shall be issued in the mergers. All fractional shares of Saratoga common
stock to which a holder of OptiCare Stock or Prime common stock immediately
prior to the effective time of the mergers would otherwise be entitled at the
effective time shall be aggregated. If a fractional share results from such
aggregation, in lieu thereof Saratoga (or the exchange agent on its behalf)
shall pay to each person entitled to receive any such fractional interest an
amount in cash (without interest) equal to the closing sale price, or if not
available, closing bid price, on the closing date of the mergers of one share
of Saratoga common stock multiplied by such fraction of a share.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the mergers may be abandoned at
any time prior to the Closing, whether before or after stockholder approval of
the merger agreement:
o by any of Saratoga, OptiCare or Prime, if the mergers have not been
consummated by September 30, 1999.
o by Saratoga, OptiCare or Prime, if the merger agreement has not been
approved by the stockholders of OptiCare or Prime,
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o by Saratoga, OptiCare or Prime, if there is any order of a court or
governmental authority permanently prohibiting the mergers and the
related transactions
o by any party, if there has been a material breach of any of the
covenants or other material provisions of the merger agreement by of
another party.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
With the consent of the other parties, we may amend the merger agreement
prior to closing of the mergers, provided that we comply with applicable state
laws in so doing.
Any party may extend another party's time for the performance of any
obligation or other act under the merger agreement, may waive inaccuracies in
such other party's representations and warranties and may waive compliance with
any of the agreements or conditions contained in the merger agreement.
Any amendment of the merger agreement following approval by the
stockholders of the parties may not be made without further approval of such
stockholders if any such amendment changes the amount or the form of the
consideration to be delivered to them.
RELATED AGREEMENTS
This section of the Prospectus/Proxy Statement describes agreements
related to the merger agreement to be entered into with certain stockholders or
affiliates of either OptiCare or Prime, as appropriate, who will receive shares
of the common stock of Saratoga, in connection with the merger agreement.
AFFILIATE AGREEMENTS
The Affiliate Agreements will be entered into with each stockholder who
may, at the time the merger agreement is submitted to the stockholders of Prime
or OptiCare, as appropriate, be an "affiliate" of Prime or OptiCare. The
Affiliate Agreements restrict those stockholders from making any sale, transfer
or other disposition of such shares in violation of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission in
connection with such statute. Accordingly, those shareholders must hold their
shares indefinitely unless the shares have been registered under the Securities
Act, a sale of such shares is made under Rule 145, or some exemption from
registration (affirmed by an opinion of counsel) is available.
Each certificate representing the shares received by stockholders
executing an Affiliate Agreement will bear a legend stating that the shares
were issued in a transaction to which Rule 145 under the Securities Act of 1933
applies and referring to appropriate restrictions on the sale of such shares.
This legend may be removed by delivery of a substitute certificate, if a
stockholder who has executed an Affiliate Agreement delivers to Saratoga a copy
of a letter from the staff of the Securities and Exchange Commission or an
opinion of counsel in form and substance satisfactory to Saratoga; in either
event, providing that the legend is not required for the purposes of the
Securities Act.
SETTLEMENT AGREEMENT
Background. In 1996, Drs. D. Blair Harrold and Allan L.M. Barker, majority
shareholders in Optometric Eye Care Center, P.A. and Consolidated Eye Care,
Inc. sold Consolidated to Prime. At the same time, Drs. Barker and Harrold
became executive officers and directors of Prime. Consolidated and Optometric
Eye Care had previously entered an administrative services agreement which
continued after the sale of Consolidated to Prime. Among other factors, the
impending mergers prompted Drs. Barker and Harrold to begin proceedings to
terminate the administrative services agreement between Consolidated and
Optometric Eye Care and to submit their resignations from Prime forthwith. In
conjunction with these actions, Drs. Barker and Harrold submitted a Request for
Declaratory Ruling from the North Carolina Board of Examiners in Optometry (the
"Optometry Board") and instituted a lawsuit in North Carolina Superior Court,
asking the court to grant a Temporary Restraining Order, which was issued,
enjoining, among other things, the mergers.
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Basis of Settlement. Since OptiCare's board had identified retention of
Drs. Barker and Harrold as a key requirement of executing the merger agreement,
Prime determined that it was in its best interest to negotiate a mutually
agreeable settlement agreement with Drs. Barker and Harrold. On April 9, 1999,
Drs. Harrold and Barker entered into a settlement agreement among Optometric
Eye Care, Prime, Consolidated and the other parties to the lawsuit. Following
are the material terms of this settlement agreement:
(1) Consolidated and Optometric Eye Care will enter into a new 40-year
administrative services agreement with an initial 15 year term and five
automatic renewals for five years each.
(2) $2.5 million in cash will be placed into escrow and paid to Drs. Harrold
and Barker if and when certain intermediate events occur, in particular
closing of the merger among OptiCare, Prime and Saratoga as well as
resolution, in a manner satisfactory to OptiCare, of the Optometry Board
proceedings.
(3) Prime will issue additional shares of its common stock to Drs. Harrold
and Barker that, together with shares previously owned, will constitute
32% of Prime's total common stock calculated on a primary basis
immediately prior to the mergers. This share grant will also satisfy all
claims alleged by Optometric Eye Care to a note receivable in the amount
of $364,896 and $482,193 in cash held by Consolidated.
(4) Drs. Harrold and Barker will execute new employment agreements with
OptiCare to be effective at closing.
(5) In the event of a subsequent insolvency or bankruptcy of OptiCare, Drs.
Harrold and Barker will have the right to purchase six retail business
operations in North Carolina for three times the earnings before
interest, taxes, depreciation and amortization excluding the effect of
all extraordinary items and non-recurring charges (EBITDA). This right
will be available to Drs. Harrold and Barker only until such time as the
aggregate market value of their stock in the combined company is less
than $7 million.
(6) Dr. Barker will be named as a director of the combined company.
(7) Drs. Harrold and Barker will enter into a succession aggreement that will
require them, upon closing of the merger to divest all of their
Optometric Eye Care ownership interest to a designated North Carolina
licensed optometrist.
LOCK-UP AGREEMENTS
All officers, directors and 10% stockholders of Saratoga immediately after
the closing and certain other stockholders of Saratoga as required by OptiCare
and Prime will enter into lock-up agreements with Saratoga in which the
Saratoga insiders (i) will agree not to sell their shares of Saratoga common
stock for a period of 180 days following the closing of the mergers and (ii)
will agree they will thereafter notify Saratoga in advance of any sales or will
give Saratoga a right of first refusal to purchase any shares of Saratoga
common stock they wish to sell, as OptiCare and Prime may require. Physicians
who have agreements with OptiCare or Prime as of the closing shall enter into
lock-up agreements with Saratoga pursuant to which each of them will agree not
to sell more than 25% (on a non-cumulative basis) of his or her Saratoga common
stock in any six month period.
TREATMENT OF PRIME CLASS A PREFERRED STOCK AND WARRANTS
Marlin Capital, L.P., owns 8,000 shares of Prime Class A preferred stock
and 1,333,333 warrants to purchase a like number (subject to adjustments in
certain circumstances) of shares of Prime common stock. Immediately prior to
the effective time of the mergers, Marlin will exchange those securities with
Prime as follows:
(a) 2,000 shares of Prime preferred stock and all the warrants (as
adjusted) shall be exchanged for 2,033,333 shares of Prime common
stock (which in turn will be exchanged in the mergers for
approximately 637,246 shares of Saratoga common stock).
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(b) 2,000 shares of Prime preferred stock shall be exchanged for a
promissory note with the following terms:
o principal amount.........................................$2,000,000
o term..................................................3 years
o interest ratemarket rate as agreed by Prime/OptiCare
o subordinated in right of payment to the bank debt of the combined
company.
(c) 4,000 shares of Prime preferred stock shall be exchanged for a
promissory note with the following terms:
o principal amount.........................................$4,000,000
o initial interest rate..........................................None
o interest rate beginning after 180 days...........................9%
o term..................................................3 years
o convertible into Saratoga common stock..........after 1 year
o conversion price: greater of
(x) closing market price on first trading day after mergers, or
(y) 90% of average closing price of Saratoga common stock in the 20
trading days prior to conversion;
o subordinated in right of payment to the bank debt of the combined
company.
To the extent that the combined company raises equity of at least
$7,000,000 after the closing of the mergers, the proceeds thereof would be
applied to redeem the $4,000,000 promissory note held by Marlin.
AMENDMENT OF CERTAIN OPTICARE AGREEMENTS
OptiCare is currently a party to agreements with stockholders and
warrantholders of OptiCare that are required to be amended to accommodate the
mergers. These agreements include an amended and restated stockholders
agreement between OptiCare and each of its stockholders, a warrant agreement
between OptiCare and five warrantholders who are also stockholders of OptiCare
or affiliates of stockholders, and a registration rights agreement between
OptiCare and five stockholders.
The stockholders agreement contains many provisions, such as restrictions
on transfers of shares, rights of first refusal, co-sale rights and election of
the board of directors, that are customary for a privately held company but not
appropriate for a company whose shares will be publicly traded and listed on an
exchange. The Company will seek to amend the stockholders agreement to
terminate all of its provisions except for a provision creating a financial
disincentive in the event that any stockholder who is also an employee of
OptiCare or the Professional Corporation voluntarily terminates his employment
and subsequently competes with OptiCare in violation of a five year covenant
not to compete. The stockholders agreement also contains piggyback registration
rights, and following an initial public offering by OptiCare, Form S-3 demand
registration rights in favor of the stockholders. In view of the fact that the
shares of Saratoga common stock to be received by the OptiCare stockholders in
the merger will be registered under the Securities Act, OptiCare will also seek
to terminate these registration rights in connection with the amendment to the
stockholders agreement.
The warrant agreement relates to warrants to purchase 61,022 shares of
preferred stock of OptiCare. In connection with the mergers, these warrants
will be exchanged for warrants to purchase Saratoga common stock as described
above under the caption "Summary of the Merger Agreement--Treatment of OptiCare
and Prime Stock Options and Warrants." These warrants are
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exercisable at any time prior to October 15, 2002, and the warrant agreement
will be amended to reflect this substitution of Saratoga warrants for OptiCare
warrants in the merger.
The registration rights agreement provides for demand and piggyback
registration rights in favor of five stockholders, Oxford Health Plans, Inc.,
Nazem OptiCare Partners, L.P., Christopher Kaufman, Eugene W. Huang and Anthem
Health Plans, Inc. The registration rights cover shares of OptiCare stock held
by these stockholders or issuable upon exercise of the warrants described
above. Again, in view of the fact that the shares of Saratoga common stock to
be received by the OptiCare stockholders will be registered under the
Securities Act, OptiCare will seek to terminate the registration rights as they
apply to the Saratoga common stock to be received in the merger and retain the
piggyback registration rights for the shares of Saratoga common stock issuable
upon exercise of the warrants.
NEW CREDIT FACILITY
A condition of the closing of the merger agreement requires the combined
company to obtain a new credit facility acceptable to the parties to the merger
agreement. The combined company has received an executed terms sheet for a new
credit facility from Bank Austria Creditanstalt Corporate Finance, Inc., a
corporation, for an aggregate of up to $29,200,000, of which up to $9,200,000
will be a revolving line of credit (including a sublimit of $1,500,000 for a
letter of credit facility), and up to $20,000,000 will be a term loan. The
credit facility will be secured by a security interest in substantially all the
assets of the combined company, including the capital stock of OptiCare and
Prime, the assets of OptiCare and Prime, and the guarantees of OptiCare and
Prime.
In connection with the credit facility, Bank Austria will acquire the
following equity securities:
o 500,000 shares of Prime common stock at a price of $0.01 per share,
immediately prior to the closing of the merger;
o 307,700 shares of the combined company's common stock, immediately
after the mergers, at a price of $5.85; and
o warrants to purchase 100,000 shares of the combined company's common
stock, immediately after the mergers, at a price of $5.85 per share.
The Prime shares would be converted at the effective time of the mergers,
at the Prime and OptiCare exchange ratios, into 156,700 shares of Saratoga
common stock. The proceeds of Bank Austria's purchase of 307,700 shares would
be applied to permanently reduce the balance owed by Prime under its current
credit facility.
The terms sheet is subject to, among other things:
(a) the approval of two of Bank Austria's loan committees,
(b) continuing due diligence review of the combined company up to
the time of the mergers, and
(c) the preparation and execution of formal and binding agreements
setting forth all the terms of the credit facility.
See, also, "Risk Factors," and "Business of OptiCare, Prime and the
Combined Company -- Combined Company Management's Discussion and Analysis of
Pro Forma Combined Financial Condition and Results of Operations."
INFORMATION ABOUT SARATOGA
SARATOGA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview. Since the consummation of the ING-P/Energy Agreement (see
"History of Saratoga's Business--ING-P/Energy Agreement") in May 1996,
management has sought new business opportunities through acquisitions and
through use of Saratoga's database and expertise in the oil and
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gas business, with a view to enhancing stockholder value. Results of operations
should be evaluated in light of Saratoga's being in a period of transition, in
which management is seeking to develop new businesses that will ultimately
generate earnings and otherwise enhance stockholder value. If the mergers are
consummated, Saratoga will thereafter be engaged in a completely different
business. In December 1998, Saratoga Holdings I, Inc., a wholly owned
subsidiary of Saratoga, acquired a portfolio of consumer debt receivables at a
deep discount and commenced a business of acquiring, reselling, managing and
collecting portfolios of delinquent and defaulted accounts receivable.
RESULTS OF OPERATIONS
For the quarter ended March 31, 1999 compared to the quarter ended March 31,
1998
Revenues. Total revenues for the first quarter of 1999 were approximately
$1,000, compared to $28,000 for the first quarter of 1998. The decline is the
result of a non-recurring gain on the sale of marketable securities that was
realized in 1998, and lower interest income because of a lower level of
investable assets. Receipts from consumer debt finance are being applied first
to reduce the investment in past due accounts receivable to zero, and
accordingly, there was no net revenue from consumer debt finance recorded in
the first quarter of 1999. The Registrant did not start its consumer debt
finance business until December 1998 and, accordingly, had no such revenue in
the first quarter of 1998.
Costs and Expenses. Costs and expenses for the first quarter of 1999
totaled $93,000 compared to $97,000 for the first quarter of 1998. The moderate
reduction is the result of the continuation of determined cost control efforts
of management.
Net Loss. Saratoga's consolidated net loss was approximately $92,000 in
1999, compared to a net loss of $69,000 in the first quarter of 1998. The
increase in net loss is attributable to the absence in 1999 of gains from
non-recurring sales of marketable securities that were made in the first
quarter of 1998.
For the year ended December 31, 1998 compared to the year ended December 31,
1997
Revenues. Total revenues for fiscal 1998 were $39,000, as compared to
$35,000 for fiscal 1997. Revenue from consumer debt finance was negligible in
1998, as Saratoga started the business only in December of 1998.
Costs and Expenses. Costs and expenses were reduced in 1998 as a result of
determined cost control efforts of management. Costs and expenses for fiscal
1998 totaled approximately $363,000, compared to $462,000 for fiscal 1997.
Net Loss. Saratoga's consolidated net loss was approximately $324,000 in
1998, compared to a net loss of $118,000, an increase of approximately
$206,000. In fiscal 1997, Saratoga had a non-recurring gain of approximately
$309,000 that was attributable to the settlement of litigation with a former
officer and stockholder. Excluding the effect of such non-recurring gain,
Saratoga's net loss in 1998 would be $103,000 less than the net loss in 1997,
which management attributes to its cost control efforts.
LIQUIDITY AND CAPITAL RESOURCES
Saratoga's assets at December 31, 1998, consisted almost entirely of cash
in the amount of $290,000. Saratoga believes that its current cash balance will
be sufficient to conduct its business for the next 12 months. Management
believes that its cost control efforts will enable Saratoga to continue its
operations for the next 12 months without additional cash on hand.
YEAR 2000 ISSUE
Saratoga utilizes software and related technologies that may be affected
by the Year 2000 problem, which is common to most businesses. Saratoga is
addressing the effect of the potential Year 2000 problem on all its critical
systems and with all of its critical vendors, customers and clients. At
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this time, critical information systems throughout Saratoga are Year 2000
compliant. No extra costs were incurred in obtaining this compliance.
Management has determined that no critical business areas will be adversely
affected by Year 2000 issues, but Saratoga continues to work with its vendors,
customers and others to ensure a smooth transition. Based on the foregoing,
management does not consider any contingency plan to be necessary, and
management believes that any costs and risks related to Year 2000 compliance
will not have a material adverse impact on the liquidity or financial position
of Saratoga. If Saratoga hereafter engages in acquisitions or business
combinations, such as the purchase of the consumer debt accounts receivable in
1998 or the mergers, management will address possible new Year 2000 problems
related to such transactions at the time of such transactions.
FORWARD-LOOKING STATEMENTS
Statements contained herein that relate to Saratoga's future performance,
including without limitation statements with respect to Saratoga's anticipated
results for any portion of 1999, shall be deemed forward-looking statements
within the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. A number of factors affecting Saratoga's business and operations
could cause actual results to differ materially from those contemplated by the
forward-looking statements. Those factors include, but are not limited to,
demand and competition for Saratoga's products and services, changes in the
requirements of clients and customers, and changes in general economic
conditions that may affect demand for Saratoga's products and services or
otherwise affect results of operations or the value of Saratoga's assets. The
forward-looking statements that are included in this Proxy Statement/Prospectus
were prepared by management and have not been audited by, examined by, compiled
by or subjected to agreed-upon procedures by independent accountants, and no
third party has independently verified or reviewed such statements. Readers of
this Proxy Statement/Prospectus should consider these facts in evaluating the
information and are cautioned not to place undue reliance on the
forward-looking statements contained herein.
BUSINESS OF SARATOGA PRIOR TO THE MERGERS
Recent Developments
Since the completion in 1996 of the sale of a majority of Saratoga's oil
and gas producing properties (see "History of Saratoga's Business--ING-P/Energy
Agreement"), Saratoga has been in the process of pursuing various potential
business opportunities, while continuing its oil and gas efforts. In this
regard, Saratoga recently entered into a purchase and sale agreement for the
acquisition of certain oil and gas properties for a purchase price of $27.5
million. Saratoga was ultimately unsuccessful in consummating the acquisition,
but was awarded a $400,000 transaction break-up fee. Saratoga continues to
pursue hydrocarbon production and mineral lease acquisitions, as well as
prospect development. Saratoga has retained consultants for the purpose of
evaluating mineral lease acquisitions in Houston County, Texas, and production
purchases in the Los Angeles basin. Additionally, Saratoga has retained a
geological/geophysical firm to utilize Saratoga's data to identify exploration
and development prospects. Saratoga continues to evaluate potential
acquisitions. In 1998, Saratoga considered the acquisition or development of
numerous businesses, and these efforts resulted in the transactions hereinafter
described.
On March 27, 1998, Saratoga Resources, Inc., a Texas corporation
("Saratoga-Texas"), which is a wholly owned subsidiary of Saratoga, entered
into a consulting agreement with an independent oil and gas exploration company
to utilize Saratoga's extensive seismic and well log data for the
identification of oil and gas exploration and development prospects. In this
regard, Saratoga-Texas is now pursuing a re-entry project in Dawson County,
Texas. On March 18, 1999, Saratoga-Texas entered into a second agreement with
the same company to evaluate opportunities in the Louisiana Cretaceous shelf
and extended the 1998 agreement. Under these agreements, Saratoga-Texas
provides advisory services and receives compensation in the form of a working
interest and/or royalties generated from identified prospects of up to 33%.
Consumer Debt-collection Finance. Saratoga formed Saratoga Holdings I
Inc., a Texas corporation ("Saratoga Holdings"), as a wholly owned subsidiary
in October 1998 and commenced
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operation of a consumer finance business in December 1998 by the acquisition of
a portfolio of consumer debt receivables at a deep discount, upon which
Saratoga Holdings is now realizing collections. Saratoga Holdings expects to
collect the debt or resell the portfolio in its current or a restructured
configuration. Saratoga Holdings is not a licensed collection agency - it
retains a licensed collection agency to collect the accounts on a commission
basis.
Saratoga Holdings has filed a registration statement on Form SB-2 with the
Securities and Exchange Commission to register up to 3,465,292 shares
(approximately 90%) of Saratoga Holdings's outstanding common stock, to effect
a proposed spinoff of Saratoga Holdings to the stockholders of Saratoga. The
proposed spinoff is a part of Saratoga's strategy of enhancing stockholder
value and would be necessary if the mergers come to fruition. The unregistered
shares of Saratoga Holdings will be retained by Saratoga-Texas.
PROPOSED ACTIONS BY SARATOGA PRIOR TO THE COMPLETION OF THE MERGERS
A condition of the merger agreement is that Saratoga at the time of
closing shall generally have no assets or liabilities, other than cash in the
amount of approximately $150,000. Saratoga has conducted its business through
three subsidiaries (Saratoga-Texas, Lobo Operations, Inc. ("Lobo Operating")
and Lobo Energy, Inc. ("Lobo Energy")), in addition to its newly formed
subsidiary, Saratoga Holdings. Each of these subsidiaries is currently
wholly-owned by Saratoga.
To satisfy the condition of the merger agreement described above, Saratoga
proposes to do the following:
o make a contribution of all of the stock of Lobo Energy and Lobo
Operating to Saratoga-Texas;
o cause Saratoga-Texas to make a cash distribution to Saratoga of
$150,000;
o if the registered distribution of Saratoga Holdings has not occurred as
of the Effective Time, Saratoga will also make a contribution of all of
the outstanding shares of Saratoga Holdings to Saratoga-Texas;
o make a pro rata distribution of the stock of Saratoga-Texas to each of
the then existing shareholders of Saratoga.
As a result of the above, Saratoga-Texas will:
o have the same assets and liabilities (other than the $150,000 to be
held by Saratoga);
o have the same shareholder base and the same number of shares of stock
outstanding as shall exist for Saratoga immediately before the
effective time of the mergers;
o continue the business that has been conducted by Saratoga prior to the
mergers;
o continue to be subject to the periodic reporting requirements and other
applicable provisions of the Exchange Act.
The disposition of the subsidiaries of Saratoga will occur prior to the
mergers, and so the Prime and OptiCare stockholders will NOT participate in any
distribution by Saratoga Texas.
HISTORY OF SARATOGA'S BUSINESS
On September 8, 1993, Saratoga (which was then known as "Sterling
Resources Corporation") underwent a comprehensive change in management and was
recapitalized through acquisition of Saratoga Resources, Inc., a Texas
corporation ("Saratoga-Texas"). The then existing five stockholders of
Saratoga-Texas exchanged 100% of Saratoga-Texas stock for over 90% of the
outstanding voting rights of Sterling and provided new management for Saratoga.
Prior to this date, Saratoga had been a "shell" with virtually no business
assets or capital. In January 1994, Saratoga changed its domicile from Utah to
Delaware and changed its name to Saratoga Resources, Inc.
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On November 12, 1993, Saratoga entered into a Purchase and Sale Agreement
(the "Hunter Agreement") with Hunter Petroleum, Inc. ("Hunter") pursuant to
which Saratoga acquired certain oil and gas interests in South Texas (the
"Hunter Properties"). Financing for this acquisition was provided pursuant to a
Loan Agreement with BankOne Texas, N.A. ("BankOne") under which the bank agreed
to provide Saratoga with a $20 million revolving credit facility.
On May 25, 1994, Saratoga established a new lending relationship with
Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation
("ING"), by executing a credit agreement and related documents (the
"Pre-existing Credit Agreement"). As of that date, Saratoga used the various
credit facilities that were provided by ING to:
(a) acquire, through Saratoga-Texas, 57.15% of the outstanding
common stock of Lobo Energy, Inc., a Texas corporation, at a
price of $6,000,375, for the LEI common stock;
(b) pay off all debt associated with those properties at the time of
acquisition,
(c) retire all credit facilities at BankOne,
(d) develop existing oil and gas properties, and
(e) provide general working capital.
On March 31, 1995, Saratoga and ING entered into a new credit agreement
(the "Credit Agreement") to do the following:
(a) refinance the existing debt to ING,
(b) purchase the remaining common stock of Lobo Energy, at a price
of $5,401,000, and
(c) provide additional money for acquisitions of additional
properties.
ING-P/Energy Agreement. On May 7, 1996, Saratoga entered into an agreement
(the "ING-P/Energy Agreement") among Saratoga, Saratoga-Texas, Lobo Operating,
Inc., a Texas corporation, and Lobo Energy, Thomas F. Cooke, Joseph T.
Kaminski, Randall F. Dryer, ING and Prime Energy Corporation, a Delaware
corporation (which we refer to as "P/Energy" -- it has no connection with
PrimeVision Health, Inc.). The ING-P/Energy Agreement provided for the
following:
o Saratoga-Texas, Lobo Operating and Lobo Energy sold virtually all their
assets to ING pursuant to ING's rights under the credit agreement and
related documents dated March 31, 1995,
o ING resold the assets to P/Energy for $7,180,000 in cash and certain
other consideration,
o Saratoga settled its debts to vendors debt and other related
liabilities,
o Saratoga received $1,500,000, and
o Saratoga had no material liabilities going forward.
Saratoga was then in a position, with approximately $1,500,000 in cash, to
pursue new business opportunities.
Background of ING-P/Energy Agreement. Saratoga, Saratoga-Texas, and Lobo
Energy entered into the credit agreement with ING to facilitate the acquisition
by Saratoga-Texas of interests in certain oil properties. Under the terms of
the credit agreement, ING established two credit facilities in favor of
Saratoga-Texas in the combined maximum principal amount of $19,000,000, subject
to certain borrowing base limits. All oil and gas properties owned by the
Saratoga were pledged as collateral under the Credit Agreement and all
obligations to ING were also guaranteed by Saratoga and all of its
subsidiaries. Funds obtained from these credit facilities were anticipated to
be used for the development of the oil properties by Saratoga.
Subsequent to entering into the credit agreement, Saratoga engaged
Internationale Nederlanden (U.S.) Securities Corporation, a subsidiary of ING,
to assist Saratoga in a private placement of Saratoga stock. The private
placement efforts were not successful and additional funds necessary for the
development of the oil properties were not provided by ING.
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The failure of the private placement efforts--combined with the shortage
of funds for the development of its oil properties--placed Saratoga in a severe
financial crisis. At about that time, therefore, Saratoga replaced its existing
chief executive officer with Mr. Thomas F. Cooke, who was then (and continues
to be) the Chairman of the Board. In an attempt to salvage the maximum value of
Saratoga for the benefit of the other creditors and the stockholders of
Saratoga, Saratoga spent several months examining and pursuing various
alternatives with respect to:
(a) the possible refinancing and/or restructuring of the debt of the
Saratoga Companies,
(b) the sale of the Saratoga assets, and
(c) the prosecution or settlement of certain potential claims
against ING.
Facing what Saratoga believed to be an eminent foreclosure action by ING
which would restrict Saratoga's objectives and its ability to consummate
negotiations with P/Energy, in April of 1996, Saratoga filed a lawsuit against
ING, principally seeking injunctive relief from ING's threat of foreclosure.
Subsequently, Saratoga and ING discussed a final resolution of ING's rights
under the credit agreement and Saratoga's asserted claims. In reviewing its
options, Saratoga believed that sale of assets pursuant to theING-P/Energy
Agreement would leave Saratoga in a better financial position than a contested
foreclosure sale by ING.
EMPLOYEES
At December 31, 1998, Saratoga employed two full time employees consisting
of one executive officer (the Chief Executive Officer) and an office manager.
DESCRIPTION OF PROPERTY
Saratoga maintains an office in Austin, Texas, on a month-to-month basis
at a current rate of $2,175 per month.
CERTAIN TRANSACTIONS
Mr. Cooke and certain other directors (who resigned prior to 1998) acted
as individual guarantors of $500,000 of Saratoga's debt associated with an
acquisition made in 1994. In consideration for such guarantee, the board of
directors granted Mr. Cooke and the other directors options (the "Special
Options") to purchase an aggregate of 250,000 shares of Saratoga's common stock
at $1.60 per share, of which Mr. Cooke was granted 100,000 Special Options.
These options were exercisable from May 11, 1994 and were to expire five years
thereafter.
Effective May 17, 1997, Saratoga purchased 870,737 shares of common stock
and all Special Options from one former director of Saratoga, who resigned as a
Director. The total purchase price for the common stock and the options was
$175,000. The Special Options awarded to one other director were extinguished
as part of the settlement of a lawsuit by such director against Saratoga, Mr.
Cooke and certain other persons.
EXECUTIVE OFFICERS OF SARATOGA PRIOR TO THE MERGER
Executive officers of Saratoga serve at the pleasure of the board of
directors and are elected annually at a meeting of the board of directors. Set
forth are the directors and executive officers at May 12, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ----- -------------------------
<S> <C> <C>
Thomas F. Cooke .......... 50 Chairman of the Board,
Chief Executive Officer,
President, Treasurer and
Secretary
Kevin M. Smith ........... 54 Director
</TABLE>
BIOGRAPHICAL INFORMATION
Thomas F. Cooke, Chairman of the Board, Chief Executive Officer,
President, Treasurer and Secretary, age 50, was one of the co-founders of
Saratoga Resources, Inc. in 1990. Mr. Cooke has been
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a self employed independent oil and gas producer for the last 17 years.
Sterling acquired Saratoga-Texas in September 1993, at which time Mr. Cooke was
elected Chairman of the Board and Chief Operating Officer of Sterling. Mr.
Cooke is a member of the Texas Independent Producer and Royalty Owner
Association and serves as Director and Chairman of the North American Energy
Issues Committee. Mr. Cooke replaced Joseph T. Kaminski as Chief Executive
Officer on April 3, 1996.
Kevin M. Smith, Director, has in excess of 30 years experience as an
exploration geophysicist. In 1977, after ten years with Amoco Production, Mr.
Smith joined R. Brewer and Company, a geophysical consulting firm. In 1984, he
formed his own geophysical consulting firm (Kevin M. Smith, Inc.), which he
continues to operate. Mr. Smith completed three years of undergraduate work at
the University of Texas in 1966 and received a Bachelor of Science degree with
a dual major of Geology and Geophysics at the University of Houston in 1967. He
also did post graduate studies in Geology and Geophysics at the University of
Houston. Mr. Smith has written professional papers on innovative uses of
geophysics in horizontal drilling projects.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended December 31, 1998, based on a review of Forms
3 and 4 furnished to Saratoga during its most recent fiscal year and Forms 5
furnished to Saratoga with respect to its most recent fiscal year, all
reporting persons of Saratoga were in compliance with Section 16(a) of the
Exchange Act.
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth all cash compensation
paid, distributed or accrued for services, including salary and bonus amounts
rendered in all capacities, for Saratoga during the fiscal years ended December
31, 1998, 1997, and 1996. All other tables required to be reported have been
omitted as there has been no compensation awarded to, earned by or paid to any
of Saratoga's executives in any fiscal year covered by the tables.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------
Fiscal Year
Name and Principal Position Ended Salary
- --------------------------------- ------------ -----------------
<S> <C> <C>
Thomas F. Cooke, CEO 1998 $ 120,000
1997 $ 120,000(1)
1996 $ 116,500(2)
</TABLE>
- ----------
(1) During fiscal years 1996 and 1997, the Company deferred portions of
salary due to Mr. Cooke, which were paid in full later in 1997, together
with $8,048 in interest. The salary information set forth in the Summary
Compensation Table for 1997 does not include (i) cash paid in 1997 for
salary deferred from prior years or (ii) interest payments on any
deferred salary.
(2) Includes $60,000 which was earned in fiscal year 1996, but deferred and
paid to Mr. Cooke in fiscal year 1997.
DIRECTOR COMPENSATION
Directors of Saratoga currently serve without any compensation for their
services, either in the form of monetary compensation, stock or stock options.
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BUSINESS OF OPTICARE, PRIME AND THE COMBINED COMPANY
BUSINESS OF OPTICARE PRIOR TO THE MERGER
OptiCare Eye Health Centers, Inc., a Connecticut corporation ("OptiCare")
was founded in 1987 and is headquartered in Waterbury, Connecticut. OptiCare is
a diversified eye health services company that delivers a range of services to
eye care professionals and managed care plans. OptiCare has four business
divisions, all located primarily in Connecticut:
(i) ophthalmology services, which owns and operates eye health centers and
provides services to ophthalmologists in Connecticut;
(ii) retail optometry, which owns and operates retail optometry stores in
Connecticut;
(iii) managed care, which contracts with managed care plans to establish
and manage panels of eye care providers to render eye care services to
persons covered by managed care plans.
(iv) ambulatory surgery centers, which provide outpatient surgical services
for eye-related diseases in three facilities in Connecticut.
In its ophthalmology services business, OptiCare operates eye health
centers, including the administration, support and contracting for
ophthalmology and optometry providers. OptiCare has entered into an
administrative services agreement with OptiCare P.C., a Connecticut
professional corporation, in which the professional corporation provides
medical services at OptiCare eye health centers.
In its retail optometry business, OptiCare owns 23 retail optometry
locations in Connecticut. OptiCare's locations are either freestanding or
co-located with ophthalmologists' or optometrists' practices. At the retail
optometry locations, OptiCare provides all the applicable optical goods and
provides all the billing, collection, and information systems to support
OptiCare's optometry operations. OptiCare also has a complete manufacturing
facility in which lenses are manufactured, surfaced and ground to
specifications and supplied to all of the Connecticut optometry locations.
In its managed care business, OptiCare contracts with managed care plans
to organize and provide eye care for participants in the managed care plan.
OptiCare develops and operates a statewide network of eye care professionals,
performs credentialing services, quality assurance and utilization review
functions, among other services, based on the needs and requirements of the
customer. OptiCare receives compensation on a fee-for-service arrangement or on
a capitation basis (i.e., a fixed fee per member per month). Most managed care
contracts have a term of three years and contain renewal provisions for
additional one year periods.
In the ambulatory surgery center business, OptiCare owns and operates
three eye care ambulatory surgical centers in Connecticut, one of which is
being converted from an eye-care-only facility to a multi-specialty ambulatory
surgical centers. Physicians perform surgical procedures in those ambulatory
surgical centers. OptiCare bills patients (or the appropriate third-party
payors) for the use of the facility. In addition, OptiCare owns and operates a
refractive laser center.
To operate these four businesses, OptiCare has licensed (as licensee) or
developed comprehensive information systems and has linked them into an
enterprise-wide operating system. OptiCare management believes that OptiCare's
advanced systems capabilities permit OptiCare to understand its underlying
business operations on a timely and accurate basis, making it possible to
manage the businesses more effectively.
FACILITIES
OptiCare currently leases approximately 33,000 square feet of office space
in Waterbury, Connecticut, for medical eye health services, optical retail
services and for an ambulatory surgical center under one lease which expires
August 31, 2010. The annual base rent for this lease is $612,240. Opticare has
the right to renew this lease for two additional terms of ten years.
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<PAGE>
OptiCare also leases approximately 10,092 square feet of office space in
an adjacent facility in Waterbury for its corporate offices and its managed
care operations under two separate leases. Under the first lease, OptiCare
leases 4,922 square feet of office space for its managed care operations under
a lease which expires September 30, 2012. The annual base rent for this lease
is $96,507. OptiCare also leases an additional 5,170 square feet of office
space in the facility for its corporate offices under a second lease which
expires August 31, 2010. The annual base rent for this second lease is $98,617.
OptiCare has the right to renew each lease for two additional terms of ten
years.
OptiCare also leases space for the operation of two ambulatory surgical
centers in the cities of Bridgeport, Connecticut and Norwalk, Connecticut.
OptiCare leases approximately 3,100 square feet of office space for its
Bridgeport ambulatory surgical center under a lease expiring on December 31,
2000. The current annual base rent for the Bridgeport facility is $42,000.
OptiCare leases approximately 17,473 feet of office space for its Norwalk
ambulatory surgical center under a lease expiring February 28, 2001. The
current annual base rent for the Norwalk facility is $420,790. OptiCare has the
right to renew the Norwalk facility lease for two additional terms of three
years.
OptiCare also leases office space at twenty-three additional facilities
throughout Connecticut for the provision of medical eye health services and/or
optical retail services. These 23 additional facilities range in size from
1,050 square feet to 5,350 square feet. OptiCare pays annual base rents at
these additional locations ranging from $15,450 to $120,000 pursuant to leases
that expire between March 31, 1999 and August 31, 2010. OptiCare has the right
to renew thirteen of these leases for additional terms ranging between two and
five years.
LITIGATION
OptiCare Physicians Action and Countersuits. Seven physicians employed by
OptiCare, P.C. commenced a multi-count action in January 1999 in the
Connecticut Superior Court complaining of inducements that led them to
affiliate with OptiCare. Shortly after the commencement of the action, three of
the plaintiffs withdrew from the lawsuit. The remaining four plaintiffs seek
damages for individual harm they claim to have suffered. One plaintiff also
purports to sue derivatively on behalf of OptiCare for harm suffered by the
shareholders. The defendants deny the factual and legal validity of the claims
asserted and have moved to dismiss the complaint. The derivative portion of the
complaint was dismissed on June 14, 1999.
OptiCare and OptiCare P.C., instituted actions in January and February,
1999, in the Connecticut Superior Court against two of the physicians for
unfair trade practices, tortious interference and abuse of process based on
defendants' course of conduct that plaintiffs complain is unlawfully designed
to force plaintiffs to modify the defendants' employment contracts. Defendants
have moved to strike the complaint. OptiCare and OptiCare, P.C. are opposing
the motion to strike, and if successful in their opposition intend to
vigorously pursue their claims.
EMPLOYEES
OptiCare has approximately 450 employees, of whom 150 are part-time.
OPTICARE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview. OptiCare Eye Health Centers, Inc. ("OptiCare") is in the
business of operating comprehensive integrated eye health centers and eye
health provider networks, including the administration, support, and
contracting for ophthalmology practices and services, optometry practice and
services, ambulatory surgery centers, retail eye wear sales and fitting
services, and eye wear manufacturing. OptiCare P.C. (the "Professional
Corporation") is engaged in the practice of medicine and surgery through the
work of ophthalmologists, optometrists, nurses and others who are either
employed by or under contract to provide medical or surgery services, and who
are licensed under the laws of the State of Connecticut. OptiCare has entered
into a professional services and support agreement with the Professional
Corporation, whereby the Professional Corporation provides the medical services
necessary to support OptiCare's business on an exclusive basis for
ophthalmology and optometry services. The Professional Corporation employs 26
ophthalmologists and 19 optometrists.
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<PAGE>
OptiCare offers optical retail services at 23 locations and, via the
Professional Corporation, provides medical eye health services at 17 locations.
OptiCare's stores are both freestanding as well co-located with
ophthalmologists or optometrists practices. In its retail optometry locations,
OptiCare provides all the applicable optical goods and provides all the
billing, collection, and information systems to support OptiCare's optometry
operations. OptiCare also has a complete manufacturing facility in which lenses
are manufactured, surfaced and ground to specifications and supplied to all of
the Connecticut optometry locations. OptiCare utilizes proprietary information
systems in support of these activities.
OptiCare believes that large retail optometry centers are an increasingly
important initial entry point for eye care patients. Beyond the economic
contribution of its stores, OptiCare believes that its optometry operations
provide a strong strategic link and patient referral source for its
ophthalmologic and other integrated eye health services.
In addition, OptiCare owns and operates three ambulatory surgery centers
in Connecticut. In its ambulatory surgical centers, ophthalmic surgeons perform
a range of specialized eye care surgical procedures, including cataracts. One
of its ambulatory surgical centers facilities is being converted from an
eye-care-only center to multi-specialty care, permitting both ophthalmic
surgery and other types of non-eye care surgical procedures to be performed. In
addition, OptiCare owns and operates a refractive laser center.
OptiCare operates an eye care network in Connecticut that includes over
450 contracted eye care providers and has contracts with managed care plans to
provide comprehensive eye care services to over 500,000 covered lives. In each
managed care contract, OptiCare creates and/or contracts with panels of
ophthalmologists and optometrists who provide eye care services under a
contract between OptiCare and the managed care plan. In these contracts,
OptiCare also performs credentialing services, quality assurance and
utilization review functions. OptiCare is paid on either a fee-for-service or
fixed fee per covered life or "capitated" basis. Most contracts have a term of
three years and contain renewal provisions for additional one-year periods.
OptiCare believes there will be increasing demand for specialized eye care
management for populations enrolled in health plans. This belief is based
partially on demographic trends, as well as the growing recognition among
health plans that the treatment of eye health lends itself to specialized
management.
Recent Developments. In April 1999, OptiCare signed a letter of intent to
purchase managed care contracts, which operate in three states, from Eye Health
Network, a wholly owned subsidiary of Omega Health Systems, Inc.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto of OptiCare included elsewhere in this Proxy
Statement/Prospectus. See the Index to Financial Statements, beginning at page
F-1.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Total Net Revenue. Total net revenues increased from $7.7 million for the
three months ended March 31, 1998 to $11.1 million for the three months ended
March 31, 1999, an increase of $3.4 million or 43.0%. This increase represents
increases of $1.5 million in net patient revenues and $1.9 million in net
managed care revenue. The increase in net patient revenues is primarily
attributable to OptiCare's medical and retail optical practice acquisitions in
the fourth quarter of 1998. The increase in net managed care revenues is the
result of a new managed care contract executed in fourth quarter of 1998 as
well as growth in member lives under existing contracts.
Staff compensation. Staff compensation (excluding ophthalmologists and
optometrists) increased 30.4% from $2.6 million for the three months ended
March 31, 1999 to $3.4 million for the three months ended March 31, 1998. This
increase was primarily due to increased medical and corporate staff related to
practice acquisitions in 1998 combined with internal growth.
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<PAGE>
Physician compensation. Physician compensation increased from $2.1 million
for the three months ended March 31, 1998 to $2.2 million for the three months
ended March 31, 1999. This increase of $0.1 million is primarily due to the
addition of optometrists resulting from the 1998 practice acquisitions.
Surgical and eyecare supplies. Surgical and eyecare supplies increased
$0.4 million from $1.0 million for the three months ended March 31, 1998 to
$1.4 million for the three months ended March 31, 1999. This increase is
primarily the result of increased optical product sales as a result of the
additional optical locations connected with the practice acquisitions in 1998.
General and administrative. General and administrative expenses increased
$0.3 million from $0.8 million for the three months ended March 31, 1998 to
$1.1 million for the three months ended March 31, 1999. This increase is
primarily due to costs related to OptiCare's expanding business through
practice acquisitions and the development of its managed care division. General
and administrative expenses as a percentage of total net revenue remained
relatively constant at 9.7% and 10.0% for the three months ended March 31, 1999
and 1998, respectively.
Managed care claims. Managed care claims increased $1.2 million from $0.5
million for the three months ended March 31, 1998 to $1.7 million for the three
months ended March 31, 1999. This increase is the result of the increase in
lives under managed care contracts and is consistent with the increase in
managed care revenues.
Net loss. OptiCare incurred a net loss of $18,107 for the three months
ended March 31, 1999 as compared to a net loss of $52,361 for the three months
ended March 31, 1998. This change is primarily due to increased revenues
associated with acquired practices and a new managed care contract in the
fourth quarter of 1998 and is offset by increased costs associated with these
activities.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net patient revenues. Net patient revenues increased from $25.3 million
for the year ended December 31, 1997 to $29.6 million for the year ended
December 31, 1998, an increase of $4.3 million or 17.2%. This increase was
primarily the result of OptiCare's acquisition in 1998 of seven optometric
medical and retail optical practices and a full year of revenue associated with
the 1997 practice acquisition as well as internal growth. The 1998 and 1997
acquisitions accounted for approximately $2.4 million of the increase in net
patient revenue.
Net managed care revenues. Net managed care revenues increased from $2.0
million in 1997 to $5.1 million in 1998, an increase of $3.1 million or 160.5%.
This change resulted from an increase in member lives associated with existing
contracts as well as the addition of one new contract. The lives managed under
these contracts totaled 533,000 and 184,000 at December 31, 1998 and 1997,
respectively.
Staff compensation. Staff compensation (excluding ophthalmologists and
optometrists) increased $3.1 million or 37% from $8.5 million in 1997 to $11.6
million in 1998. This increase was primarily due to medical staff related to
practice acquisitions and corporate staff to support managed care growth.
Physician compensation. Physician compensation increased from $8.2 million
for the year ended December 31, 1997 to $8.6 million for the year ended
December 31, 1998, an increase of $0.4 million or 4.9%. This increase was
primarily due to the addition of seven optometrists resulting from the practice
acquisitions in 1998.
Surgical and eye care supplies. Surgical and eye care supplies increased
from $3.1 million in 1997 to $4.4 million in 1998, an increase of $1.3 million
or 4.4%. This increase is primarily due to an increase in optical product sales
resulting from the additional optical locations connected with the practice
acquisitions in 1998.
General and administrative. General and administrative expenses increased
from $2.8 million for the year ended December 31, 1997 to $3.6 million for the
year ended December 31, 1998, an increase of $0.8 or 27.0%. This increase
includes $0.3 million for the rental of a refractive laser in 1998 and costs
related to OptiCare's expanding business. General and administrative expenses
as a percentage of total net revenue remained relatively constant at 10.3% and
10.4% for the years ended December 31, 1998 and 1997, respectively.
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Facility rental. Facility rental increased from $2.0 million for the year
ended December 31, 1998 to $2.4 million for the year ended December 31, 1997.
This increase of $0.4 million or 23.7% is primarily due to the addition of
eight new leases entered into by OptiCare as a result of the 1998 and 1997
practice acquisitions and the expansion of the managed care business.
Managed care claims. Managed care claims increased from $1.1 million in
1997 to $3.1 million in 1998, an increase of $2.0 million or 181.6%. This
increase is the result of OptiCare's growth in lives under managed care
contracts and is consistent with the increase in managed care revenues.
Depreciation and amortization. Depreciation and amortization expense
increased from $0.6 million in 1997 to $1.1 million in 1998, an increase of
$0.4 million or 64.9%. This increase is a result of increases in property and
equipment and the amortization of intangibles attributed to the practice
acquisitions and systems development in 1998 and 1997.
Marketing. Marketing expense increased from $0.6 million in 1997 to $1.0
million in 1998, an increase of $0.3 million or 56.1%. This increase includes
$0.1 million related to marketing efforts for refractive laser surgery. The
remaining increase is attributed to continued marketing related to OptiCare's
growth.
Net income (loss). OptiCare incurred a net loss of $0.5 million for the
year ended December 31, 1998 as compared to net income of $0.3 million for the
year ended December 31, 1997. This decrease of $0.8 million is primarily due to
increased costs associated with OptiCare's development of infrastructure for
its managed care division.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net patient revenue. Net patient revenue increased from $23.7 million for
the year ended December 31, 1996 to $25.3 million for the year ended December
31, 1997, an increase of $1.6 million or 6.7%. This increase was primarily the
result of OptiCare's continuing efforts to cross-sell multiple products and
services.
Net managed care revenue. Managed care revenues increased from $1.0
million in 1996 to $2.0 million in 1997, an increase of $1.0 million or 91.8%.
This increase was primarily the result of the addition of a significant managed
care contract.
Staff compensation. Staff compensation increased $1.3 million or 18.1%
from $7.2 million in 1996 to $8.5 million in 1997. This increase was primarily
a result of the increase in corporate staff added to support OptiCare's managed
care operations.
Physician compensation. Physician compensation increased from $7.8 million
for the year ended December 31, 1996 to $8.2 million for the year ended
December 31, 1997, an increase of $0.4 million or 5.8%. This increase is
primarily attributed to increased cash collections as a result of OptiCare's
growth.
Surgical and eyecare supplies. Surgical and eyecare supplies increased
from $2.7 million in 1996 to $3.1 million in 1997, an increase of $0.3 million
or 12.2%. This increase is due to an increase in optical product supplies to
support an increase in retail sales.
General and administrative. General and administrative expenses decreased
from $3.0 million for the year ended December 31, 1996 to $2.8 million for the
year ended December 31, 1997, a decrease of $0.2 million or 5.2%. This decrease
was caused primarily by increased economies of scale resulting from OptiCare's
expanding business. General and administrative expenses as a percentage of
total net revenues decreased from 12.1% to 10.4% for the years ended December
31, 1996 and 1997, respectively.
Facility rental. Facility rental increased from $1.9 million for the year
ended December 31, 1996 to $2.0 million for the year ended December 31, 1997.
This increase of $0.1 million or 4.3% is primarily due to increases in rented
premises.
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Managed care claims. Managed care claims expense increased from $0.7
million in 1996 to $1.1 million in 1997, an increase of $.3 million or 45.4 %.
This increase is the result of the addition of a significant managed care
contract.
Depreciation and amortization. Depreciation and amortization expense
increased from $0.5 million in 1996 to $0.6 million in 1997, an increase of
$0.1 million or 17.8%. This increase is a result of increases in property and
equipment.
Marketing. Marketing expense remained constant at $0.6 million for the
years ended December 31, 1996 and 1997.
Net income. OptiCare had net income of $0.3 million and $0.1 million for
the years ended December 31, 1997 and 1996, respectively. This increase of $0.2
million is primarily due to an increase in revenues associated with a new
managed care contract and overall practice growth and is partially offset by an
increase in expenses related to the growth in its operations as described
above.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1999, OptiCare borrowed an additional
$0.6 million under its revolving line of credit and was in compliance with the
quarterly restrictive covenants of its line of credit agreement as of March 31,
1999. As of March 31, 1999, OptiCare had cash and cash equivalents of
approximately $0.7 million with $0.6 million of additional borrowing capacity
under its $3.0 million revolving credit facility.
As of December 31, 1998, OptiCare had cash and cash equivalents of
approximately $0.9 million and $1.2 million of additional borrowing capacity
under its revolving line of credit. OptiCare was in violation of certain
covenants related to its line of credit during 1998 and received a waiver from
the bank with respect to these violations. OptiCare expects to be in compliance
with these covenants in 1999. Management believes that the combination of the
funds expected to be provided by its operations and line of credit will be
sufficient to meet its current and anticipated funding needs for the next
twelve months. OptiCare may incur additional indebtedness and may issue notes
or equity securities, in public or private transactions, in order to fund
future acquisitions.
Cash used in investing activities was $0.6 million for the three months
ended March 31, 1999, representing capital expenditures related primarily to
expansion activities. For the quarter ended March 31, 1999, OptiCare used $0.1
million in operating activities, which included a non-cash charge of $0.4
million of depreciation and amortization. Net cash provided by financing
activities was $0.5 million and was primarily the result of additional
borrowings under its line of credit.
For the year ended December 31, 1998, OptiCare used $0.5 million in
operating activities and $5.2 million in investing activities while financing
activities provided cash of $1.7 million. Cash flows used in operating
activities included a non-cash charge/(credit) of $1.1 million of depreciation
and amortization and ($0.4) million of deferred income taxes. Cash used in
investing activities consisted of $2.6 million of capital expenditures and $2.6
million in cash paid to acquire practices in 1998. Net cash provided by
financing activities was primarily the result of borrowings under OptiCare's
revolving line of credit, which was used to fund expansion and acquisition
activities. These proceeds were partially offset by principal payments on debt.
For the year ended December 31, 1997, OptiCare used $0.3 million in
operating activities and $1.6 million in investing activities while financing
activities provided $5.2 million in cash. Cash flows used in operating
activities included a non-cash charge/(credit) of $0.6 million in depreciation
and amortization and ($0.3) million in deferred income taxes. Cash flows used
in investing activities consisted principally of $1.5 million in capital
expenditures. Financing activities consisted principally of $5.8 million of
proceeds from the sale of Class A convertible preferred stock and is partially
offset by $0.6 million in cash used to repurchase stock from an employee
shareholder.
For the year ended December 31, 1996, OptiCare used $1.0 million in
investing activities, which consisted primarily of capital expenditures. Cash
provided by financing activities was $1.4 million and consisted principally of
$1.7 million of proceeds from the issuance of stock as the result of the
exercise of a warrant by a shareholder and is partially offset by $0.3 million
in principal payments on debt.
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IMPACT OF INFLATION AND CHANGING PRICES
OptiCare is subject to pre-determined Medicare reimbursement rates which,
for certain products and services, have decreased over the past three years.
For the year ended December 31, 1998, Medicare generated approximately 25% of
OptiCare's total net revenue. A decrease in Medicare reimbursement rates could
have an adverse affect on OptiCare's results of operations if it can not manage
these reductions through increases in revenues or decreases in operating costs.
To some degree, prices for health care are driven by Medicare reimbursement
rates, so that OptiCare's non-Medicare business is also affected by changes in
Medicare reimbursement rates.
Management believes that inflation has not had a material effect on
OptiCare's revenue during the past three years.
YEAR 2000 ISSUE
OptiCare has taken steps to ensure that all of its computer systems are
Year 2000 compliant. Management has developed a plan and arranged for the
required resources to complete the necessary remediation efforts for both
information technology ("IT") and non-information technology systems. These
systems include those used in practice management, managed care administration
and corporate functions, as well as any "imbedded systems" in medical
equipment. OptiCare is devoting the necessary internal and external resources
to replace, upgrade or modify any significant systems which do not correctly
identify the Year 2000. Substantially all necessary modifications and testing
of OptiCare significant systems have been completed.
All of OptiCare's critical and non-critical systems are anticipated to be
Year 2000 compliant by September 30, 1999 and to date management believes
substantially all of the critical systems are compliant. Contingency plans are
in place to address unexpected Year 2000 issues that include manual processing
of data or seeking alternative processing sites while awaiting remediation of
existing software or hardware from its vendors under existing maintenance
contracts.
OptiCare is also considering the potential impact of Year 2000 problems
with other entities with which OptiCare has business relationships that impact
its operation. All key vendors, service providers, and customers have been
contacted to obtain written and verbal verification as to their Year 2000
readiness. OptiCare expects these procedures to be complete by September 30,
1999.
OptiCare believes its greatest risk related to the Year 2000 involves the
potential inability of external entities, with which OptiCare transacts
business, to be Year 2000 compliant. Since OptiCare relies on certain external
entities, in particular, third party payors for a considerable portion of its
revenues, a significant failure of these parties in maintaining payments could
have a material adverse impact on OptiCare's operations.
As of December 31, 1998, OptiCare has not incurred any external costs
related to the Year 2000 since any system upgrades related to Year 2000
compliance were made under existing maintenance contracts with vendors or were
made under scheduled system upgrades as part of OptiCare's aggressive strategy
to maintain state of the art technology. As a result, OptiCare estimates that
future expenses and capital expenditures related to the Year 2000 issue will
not be material to its financial position or results of operations.
The cost to bring internal systems and equipment into compliance has not
been and is not expected to be material to OptiCare's combined financial
statements and OptiCare does not expect Year 2000 issues to have a material
adverse effect on its results of operations, liquidity or financial condition.
OPTICARE SECURITY OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of OptiCare's capital stock as of May 12, 1999 by (i) each
of OptiCare's directors and executive officers, (ii) all directors and
executive officers of OptiCare as a group, and (iii) each person known by
OptiCare to own beneficially more than five percent of the outstanding shares
of each class of OptiCare's capital stock.
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<TABLE>
<CAPTION>
CLASS A PERCENT
NAME AND ADDRESS(1) PREFERRED STOCK OF CLASS
- ------------------------------------- ----------------- -----------------
<S> <C> <C>
Dean J. Yimoyines, M.D.
President and Chief Executive
Officer and Director ............... -- *
Steven L. Ditman
Executive Vice President, Chief
Financial Officer and Director ..... -- *
Eugene Huang, M.D.
Executive Vice President and
Director ........................... 2,669 1.7%
Mark Ruchman, M.D.
Medical Director and Director ...... -- *
W. Scott Peterson, M.D.
Director ........................... -- *
Michael Koetters
Director ........................... -- *
John F. Croweak
Director ........................... -- *
Fred Nazem
Director ........................... 23,484(12) 15.4%(12)
All directors and executive
officers as a group ................ 26,153 17.1%
Anthem Blue Cross Blue Shield of
Connecticut ........................ 88,706 58.1%
Oxford Health Plans, Inc. ........... 37,361 24.5%
Nazem OptiCare Partners, LP ......... 20,901 13.7%
Richard Getnick, M.D. ............... -- *
Vincent P. deLuise, M.D. ............ -- *
Richard D. Gilbert, M.D. ............ -- *
Doris Yimoyines ..................... -- *
<CAPTION>
CLASS B
PREFERRED PERCENT COMMON PERCENT
NAME AND ADDRESS(1) STOCK(2) OF CLASS(2) STOCK(3) OF CLASS(3)
- ------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Dean J. Yimoyines, M.D.
President and Chief Executive
Officer and Director ............... 21,116(4) 7.5%(4) 45,523(5) 9.5%(5)
Steven L. Ditman
Executive Vice President, Chief
Financial Officer and Director ..... -- * 6,218(6) 1.3%(6)
Eugene Huang, M.D.
Executive Vice President and
Director ........................... -- * 8,669(7) 4.4%(7)
Mark Ruchman, M.D.
Medical Director and Director ...... 21,123(8) 7.5%(8) 24,123(9) 5.0%(9)
W. Scott Peterson, M.D.
Director ........................... 21,123(10) 7.5%(10) 21,123(11) 4.4 (11)
Michael Koetters
Director ........................... -- * -- *
John F. Croweak
Director ........................... -- * -- *
Fred Nazem
Director ........................... 16,924 6.0% 40,408(13) 8.4%(13)
All directors and executive
officers as a group ................ 80,286 28.5% 146,064 33%
Anthem Blue Cross Blue Shield of
Connecticut ........................ 24,011 8.5% 112,717(14) 23.5%(14)
Oxford Health Plans, Inc. ........... 28,758 10.2% 66,119(15) 13.8%(15)
Nazem OptiCare Partners, LP ......... -- * 20,901(16) 4.4%(16)
Richard Getnick, M.D. ............... 21,123(15) 7.5%(17) 21,123(18) 4.4%(18)
Vincent P. deLuise, M.D. ............ 21,123 7.5% 21,123(18) 4.4%(18)
Richard D. Gilbert, M.D. ............ 21,123 7.5% 21,123(18) 4.4%(18)
Doris Yimoyines ..................... 21,118 7.5% 21,118(19) 4.4%(19)
</TABLE>
- ----------
* Less than 1%
(1) The mailing address of each director and executive officer of OptiCare is
c/o OptiCare, 87 Grandview Avenue, Waterbury, CT 06708.
(2) The figures in these columns assume the exercise of all Class B preferred
stock warrants by the holders thereof.
(3) No shares of common stock were outstanding as of May 12, 1999. These
columns assume the conversion of all outstanding Class A preferred stock
and Class B preferred stock, and the exercise of all outstanding Class B
preferred stock warrants and options to purchase common stock, by the
holders thereof.
(4) These shares are held by the wife of Dean J. Yimoyines.
(5) Includes 21,116 shares issuable upon conversion of the Class B preferred
stock and 24,407 shares issuable upon the exercise of options.
(6) Includes 6,218 shares issuable upon the exercise of options.
(7) Includes 2,669 shares issuable upon conversion of the Class B preferred
stock and 6,000 shares issuable upon the exercise of options.
(8) Includes 15,843 shares held by the wife of Mark Ruchman and 5,280 shares
held by a family limited partnership.
(9) Includes 21,123 shares issuable upon conversion of the Class B preferred
stock and 3,000 shares issuable upon the exercise of options.
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<PAGE>
(10) Includes 12,007 shares held by a family limited partnership.
(11) Includes 21,123 shares issuable upon conversion of the Class B preferred
stock.
(12) Includes 20,901 shares held by Nazem OptiCare Partners, L.P., a limited
partnership of which Mr. Nazem is the general partner. Mr. Nazem
disclaims beneficial ownership of such shares.
(13) Includes 23,484 shares issuable upon conversion of the Class A preferred
stock and 16,924 shares issuable upon conversion of the Class B preferred
stock.
(14) Includes 88,706 shares issuable upon conversion of this series of the
Class A preferred stock and 24,011 shares issuable upon conversion of the
Class B preferred stock.
(15) Includes 37,361 shares issuable upon conversion of the Class A preferred
stock and 28,758 shares issuable upon conversion of the Class B preferred
stock.
(16) Includes 20,901 shares issuable upon conversion of the Class A preferred
stock.
(17) Includes 15,843 shares held by the wife of Richard Getnick and 5,280
shares held by a family limited partnership.
(18) Includes 21,123 shares issuable upon conversion of the Class B preferred
stock.
(19) Includes 21,118 shares issuable upon conversion of the Class B preferred
stock.
BUSINESS OF PRIME PRIOR TO THE MERGERS
HISTORY AND RECENT DEVELOPMENTS
Prime is an integrated vision services company incorporated in Delaware
and headquartered in North Carolina. Prime is involved in three vision-related
lines of business: (1) managed vision care, (2) buying group and distribution
and (3) optometric practice management and retail optical. In December 1998,
the board of directors approved the disposal of Prime ophthalmology practice
management division and related administrative support functions (the
"ophthalmology division").
Prime is a result of a merger between Consolidated Eye Care and Prime
Vision Group which occurred on July 3, 1996 whereby Consolidated exchanged all
of its outstanding voting common stock for 3,966,771 shares of voting preferred
stock of Prime Group. Since the former Consolidated shareholders retained the
majority of the voting rights in the combined company, Consolidated was treated
as the acquirer in the business combination. These shareholders, acting as a
group, have the independent right to split up Prime. The stated period of time
for a split-up to occur commences in January 2001 and ends 60 days later. This
right terminates if Prime completes an initial public offering and terminates
upon closing of the mergers.
Prime's optometry and retail optical division provides consulting,
administrative and other support services to 27 optometry eye care centers
located in North Carolina. All of these optometry centers are owned by
shareholders of Prime who were formerly shareholders of Consolidated.
Prime's managed vision care business is conducted primarily through two
wholly owned subsidiaries which are licensed as single service HMO's in North
Carolina and Texas.
Prime conducts its buying group and distribution business with
approximately 4,000 individual ophthalmology and optometry practices throughout
the United States.
For the year ended December 31, 1998, Prime recorded a $3.2 million net
loss. Prime is highly leveraged and is not in compliance with its bank debt
covenants. Accordingly, all bank debt has been classified as a current
liability. Management has determined that the ophthalmology business is the
main contributing factor to Prime's liquidity problems due to lower than
expected cash flows from the ophthalmology service agreements and excessive
purchase prices of those practices as evidenced by the historical operating
losses experienced by the division and significant goodwill write-downs this
year and in prior years within the division. Prime's headquarters in Raleigh,
North Carolina exist primarily to support the ophthalmology division and such
headquarter expenses were higher than justified by operating earnings of the
ophthalmology division.
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EMPLOYEES
Prime currently has 926 employees, 178 of which are part time and 582 of
which are part of the ophthalmology and corporate discontinued operations.
PROPERTIES
The following properties are leased by Prime through its wholly-owned
subsidiary, Consolidated Eye Care:
<TABLE>
<CAPTION>
BASE
SQ. ANNUAL REMAINING RENEWAL
LOCATION FOOTAGE RENT TERM OPTIONS ESCALATIONS USE OF PREMISES
- -------------------------- --------- ---------- ----------- ------------------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
110 Zebulon Court, 4,039 $ 46,448 3 yrs. None None HMO Offices
Rocky Mount, NC
112 Zebulon Court--A, 15,085 $137,552 3 yrs None None Operations
Rocky Mount, NC Center
112 Zebulon Court--B, 1,800 $ 14,850 3 yrs. None None Executive Offices
Rocky Mount, NC
3010 LBJ Freeway, 523 $ 6,276 1 yr. None None HMO Offices
Dallas, TX
125 Holly Hill Mall, 3,425 $ 65,075 1 yr. (1) 5-yr. Term See Below Retail Optometry
Burlington, NC (Consolidated's option) * and Eye Exams
1563 Highway 70 West, 4,000 $ 48,000 2 yrs. (2) 5-yr. Terms 10% for Retail Optometry
Gamer, NC (Consolidated's option each and Eye Exams
renewal
term
921 Eastchester Dr., 3,671 $ 66,078 6 yrs. (1) 5-yr. Term See Below Retail Optometry
Suite 2470 (Consolidated's option) ** and Eye Exams
High Point, NC
Tarrytown Mall, 3,988 $ 51,882 4 yrs. None The greater Retail Optometry
Wesleyan Blvd. of 5% or CPI and Eye Exams
Rocky Mount, NC for each
lease year
2001-32 East Dixon Blvd. 2,696 $ 37,744 6 yrs. None See Below Retail Optometry
Shelby, NC *** and Eye Exams
</TABLE>
- ----------
* $1 increase per square foot for each option year 1--5
** 1. Contributions to marketing and media funds increase $100 annually
2. Base rent for lease years 8-10 (2003 - 2005) increases to $73,420
3. Base rent for option period increases to $80,762
*** 1. Contributions to marketing and media funds increase 3% annually
2. Base rent for lease years 5-9 (2000 - 2005) increases to $43,136
LITIGATION
Missouri Action, Counterclaim and Related Put Option. Prime commenced an
action (the "Missouri Action") in United States District Court for the Eastern
District of Missouri, in August 1998, seeking damages from an ophthalmologist
(the "Missouri Seller") from whom Prime acquired the corporation from which the
Missouri Seller's practiced ophthalmology. Prime has alleged that the Missouri
Seller falsely and fraudulently inflated the value of the corporation he sold
to Prime, in the amount of approximately $2 million. The Missouri Seller has
counterclaimed against Prime, for,
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<PAGE>
among other things, enforcement of a put option, damages for allegedly
malicious prosecution and a declaration that his administrative services
agreement with Prime is terminated and of no further force or effect. The
litigation is in its earliest stages.
As part of the purchase transaction, Prime issued a put option by which
the Missouri Seller, at his election, may require Prime to purchase the balance
of his ophthalmology practice, based on substantially the same valuation which
Prime is challenging in court. The exercise price that would be payable by
Prime under the put option is approximately $4 million. In January 1999, the
Missouri Seller exercised the put option. Prime has asserted to the Missouri
Seller that Prime is not obligated to honor the put for the same reasons that
Prime is seeking damages in the Missouri Action--that the value of the
corporation sold by the Missouri Seller to Prime was falsely inflated. Prime
anticipates that the Missouri Seller will attempt to enforce the put by
litigation.
After acquiring the Missouri Seller's corporation, Prime reviewed selected
medical records of the corporation and determined that the Missouri Seller was
performing unnecessary surgery and billing third party payors, including
Medicare, for the unnecessary surgery.
Management of Prime believes that it will prevail in the pending Missouri
Action and in any attempt to enforce the put, but the expenses of the Missouri
Action and the defense of the Missouri Seller's attempts, if any, to enforce
the put could be substantial.
Maryland Action and Counterclaim. Prime commenced an action in United
States District Court in Maryland, in January 1999, against a Maryland
ophthalmology practice and its stockholders (the "Maryland Sellers") seeking
damages for the refusal of the Maryland Sellers to honor certain terms of an
administrative services agreement they made with Prime. Prime purchased a
corporation from which the Maryland Sellers practiced ophthalmology from the
Maryland Sellers and simultaneously entered into the administrative services
agreement with the Maryland Sellers for a term of 40 years. The Maryland
Sellers have counterclaimed against Prime and others alleging that the
administrative services agreement is unenforceable, and they have refused to
pay fees and other moneys owed to Prime under the terms of the administrative
services agreement.
Prime is seeking damages in the action but cannot be sure that it will win
a judgment. The Maryland Sellers have asserted counterclaims. Prime is in the
process of phasing out its administrative services agreements, and so any
adverse determination with respect to the enforceability of the administrative
services agreement will not have a material adverse effect beyond the immediate
losses of revenue, if any, that may result from the Maryland Sellers'
allegations.
Tennessee Action and Counterclaim. Prime commenced an action in United
States District Court in Tennessee in February, 1999 against a Tennessee
ophthalmology practice and its sole shareholder (the "Tennessee Sellers")
seeking damages for the refusal of the Tennessee Sellers to honor certain terms
of an administrative services agreement (the "administrative services
agreement") they made with Prime. Prime purchased a corporation from which the
Tennessee sellers practiced ophthalmology, and simultaneously entered into the
administrative services agreement with the Tennessee Sellers for a term of 40
years. The Tennessee Sellers have counterclaimed against Prime and others,
alleging that the administrative services agreement is unenforceable, and they
have refused to pay fees and other moneys owed to Prime under the terms of the
administrative services agreement.
The total amount that Prime is seeking in the action is approximately $3.6
million, but Prime cannot be sure that it will win a judgment for that amount,
or that it will collect the full value of any judgment. The Tennessee Sellers
have asserted counterclaims in an amount to be proved at trial. Prime is in the
process of phasing out its administrative services agreement's, so any adverse
determination with respect to the enforceability of the administrative services
agreement will not have a materially adverse effect beyond the immediate losses
of revenue, if any, that may result from the Tennessee Sellers' allegations.
Application to the North Carolina Board of Examiners in Optometry. In
1996, Prime purchased 100% of the capital stock of Consolidated Eye Care, Inc.,
a North Carolina corporation, from
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Drs. Allan L.M. Barker and D. Blair Harrold. Consolidated is now a wholly owned
subsidiary of Prime. Drs. Barker and Harrold are directors, officers and
principal stockholders of Prime, and Dr. Barker will become a director of the
combined company. See "Management of the Combined Company Following Closing of
the Mergers."
In connection with the sale of the Consolidated Eye Care capital stock to
Prime in 1996, Prime acquired the administrative services agreement that was
previously in effect between Consolidated and Optometric Eye Care Centers,
P.A., a North Carolina profession association engaged in optometry practice.
Drs. Barker and Harrold are the stockholders of Optometric Eye. Optometric Eye
Care Center, P.A., a North Carolina professional association engaged in the
practice of optometry, entered into an administrative service agreement with
Prime. Drs. Harrold and Barker are the sole stockholders of Optometric Eye
Care.
In March 1999, Drs. Barker and Harrold applied to the North Carolina Board
of Examiners in Optometry for a determination of whether or not the
administrative services agreement between Prime and Optometric Eye Care is
permissible under the laws and regulations governing the practice of optometry
in North Carolina. Drs. Barker and Harrold have now agreed to withdraw the
application, and the Board of Examiners in Optometry has indicated that it will
agree to honor that request for withdrawal. If the Board of Examiners
determines that the administrative services agreement is not permissible, then
Prime and Drs. Barker and Harrold would have to agree upon a new service
contract, and other administrative services agreement's between Prime and other
eye care providers may be found unenforceable. Prime is already in the process
of restructuring its legal relationships with its eye care providers, but an
abrupt requirement to restructure these relationships could have a material
adverse effect on Prime's business. However, even if the agreements are
restructured, there is no assurance that they will be on economic terms
favorable to Prime. See "Related Agreements--Settlement Agreement."
North Carolina Action. In June, 1999, a North Carolina ophthalmology
practice and its stockholders (the "North Carolina Sellers") commenced an
action in North Carolina Superior Court against Prime and others, seeking
damages for allegedly having been fraudulently induced to enter into an
administrative services agreement with Prime. Prime purchased a corporation
from which the North Carolina Sellers practiced ophthalmology, and
simultaneously entered into the administrative services agreement with the
North Carolina Sellers for a term of 30 years. The North Carolina Sellers
claim, among other things, that the administrative services agreement was
fraudulently induced, that all fees paid under the administrative services
agreement therefore should be refunded, that they should be awarded damages for
harm allegedly caused to the practice by Prime's lack of performance under the
administrative services agreement and that all practice assets previously
acquired by Prime should be returned to the North Carolina Sellers.
The total damages sought by the North Carolina Sellers is an amount not
less than $2 million, and Prime can not be sure that it will prevail in such an
action, and, although Prime plans to assert counterclaims for fraudulent
conversion and breach of contract in the North Carolina action and believes it
will succeed in such claims, it cannot guarantee that it will collect the full
value of any judgment. Prime is in the process of phasing out its
administrative services agreements, so any adverse determination with respect
to the continued existence of the administrative services agreement will not
have a materially adverse effect beyond the immediate losses of revenue, if
any, that may result from the North Carolina Sellers' allegations.
PRIME MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview:
For the year ended December 31, 1998, Prime recorded a net loss of
approximately $38.1 million. Prime is highly leveraged and is not in compliance
with its bank debt covenants. Accordingly, all bank debt has been classified in
current liabilities. Management has determined that the ophthalmology segment
is the main contributing factor to Prime's liquidity problems, due to lower
than anticipated
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<PAGE>
cash flows from the ophthalmology practices, as evidenced by the historical
operating losses experienced by the ophthalmology segment. Prime's headquarters
in Raleigh, North Carolina exists primarily to support the ophthalmology
segment, and such headquarter expenses were higher than justified by operating
earnings of the ophthalmology segment.
On December 15, 1998, in recognition of the significant losses and the
fact that the physician practice management business model as operated by Prime
has been largely unsuccessful, Prime determined that the business should be
disposed of and that a combination should be sought with a related business
with a stronger infrastructure. Subsequent to such decision by the board, the
merger was approved.
Results of continuing operations:
Quarter ended March 31, 1999 compared to quarter ended March 31, 1998
Revenues for the quarter ended March 31, 1999 were $18.1 million compared
to $17.1 million in the quarter ended March 31, 1998. The 6% increase was
primarily due to managed care revenue growth.
Cost of sales for the quarter ended March 31, 1998 was $12.7 million, an
increase of $0.6 million or 5%, which corresponded with the growth in revenues
offset by some economies of scale.
Salaries, wages and benefits increased to $2.6 million for the quarter
ended March 31, 1999 compared to $2.3 million for the quarter ended March 31,
1998 due to increased employee costs associated with servicing increased
managed care contracts.
General and administrative expenses did not increase significantly for the
quarter ended March 31, 1998 compared to the quarter ended March 31, 1999.
Interest expense of $1 million for the quarter ended March 31, 1999
represents a $177,692 decrease from prior year due to the lower debt
outstanding as a result of Prime's preferred stock issuance in the third
quarter of 1998.
Prime's effective tax rate for the quarter ended March 31, 1999 was 37%
compared to the same period's effective tax rate in prior year of (9%). The
book basis losses in 1998 did not correspond to equivalent tax basis losses
resulting in the lower effective rate.
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenues for the year ended December 31, 1998 were $64.6 million, a $6.3
million or 11% increase from prior year's $58.3 million primarily due to 100%
growth in Prime's managed care division of its eye care services business
segment. Also within the eye care services business segment, revenues in the
buying group division decreased slightly offset by a small increase in the
optometry division.
Cost of sales in 1998 was $46.2 million compared to $42.0 million in 1997.
The 10% increase was in line with the related increase in revenues.
General and administrative expenses increased from $5.2 million in 1997 to
$6.0 million in 1998 primarily due to additional costs to support revenue
growth in the managed care division.
Interest expense for the year ended December 31, 1998 was $4.5 million
versus $3.9 million for the year ended December 31, 1997. This increase is due
to increased borrowings on Prime's bank credit facility resulting from
acquisitions and lower than expected cash generation in the discontinued
ophthalmology business.
Prime's effective tax rate for the year ended December 31, 1998 of (15.5%)
represents the tax benefit expected on the significant tax losses during 1998.
The book basis loss before income taxes is significantly more than the tax
basis loss. Accordingly, the effective tax rate is significantly lower than the
statutory rate. The Company's effective tax rate in 1997 was 33.7%.
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<PAGE>
Year ended December 31, 1997 compared to year ended December 31, 1996
Revenue increased 12% to $58.3 million for the year ended December 31,
1997 from $52.2 million for the year ended December 31, 1996. This increase
consisted of increases in all three of Prime's continuing operations.
Cost of sales for the year ended December 31, 1997 was $42.0 million
compared to 37.4 million for the year ended December 31, 1996 but remained
constant as a percentage of revenues, which is consistent with the growth
across all three divisions.
General and administrative expenses decreased from $5.5 million in 1996 to
$5.2 million in 1997 due to cost savings achieved within the continuing
operations.
Interest expense increased from $1.0 million in 1996 to $3.9 million in
1997 largely due to the increased debt as a result of the significant
acquisitions completed during 1996 and 1997 by the ophthalmology division.
Prime's effective tax rate for the year ended December 31, 1997 was 33.7%
compared to an effective rate of 21.1% in 1996.
Liquidity and Capital Resources
Cash provided by continuing operating activities of Prime during 1996
totalled approximately $308,000. This amount is stated after cash interest and
income taxes paid of approximately $6.1 million. Prime also raised $8 million
of capital in 1998 by the issuance of mandatorily redeemable preferred stock.
This cash and cash from operations was primarily used to fund the $.6 million
of capital expenditures and the repayment of $6 million of bank indebtedness.
Prime is a party to a revolving credit and term loan agreement with a
third party whereby Prime has established, as the lender, a revolving line of
credit not to exceed $1.0 million and a term loan agreement not to exceed $4.0
million. Any funding under the term loan agreement requires approval of the
Prime's board of directors which is unlikely, given the current financial
position of Prime. No funding has been provided under either agreement and the
commitments and agreements expire on October 1, 1999. Management does not
anticipate any borrowings to occur under these facilities before expiration.
Bank Austria issued a term sheet on June 9, 1999 to replace the current
Prime facility and proceed towards execution of a definitive agreement for the
combined company. The terms are summarized in "Related Agreements--New Credit
Facility."
As of December 31, 1998 and currently, Prime is in default of the
covenants of its bank credit facility. Accordingly, all bank indebtedness has
been classified as a current liability. The bank is currently monitoring
Prime's restructuring plans and progress. If the transactions contemplated
herein are not consummated, it is unlikely that Prime's cash flows from
operations will be sufficient to fund its commitments. If the transactions
contemplated herein, including the successful disposal of the ophthalmology
business, are completed it is expected adjustments and repayments of debt will
occur by September 30, 1999.
Year 2000
Prime utilizes software and related technologies throughout its operations
that may be affected by the Year 2000 problem, which is common to most
businesses. Prime is addressing the effect of the potential Year 2000 problem
on all its critical systems and with all of its critical vendors and customers.
Specifically, Prime has completed upgrades to all but one of its critical
systems. Such upgrade is currently in process and is expected to be completed
by September 30, 1999. Through discussions with its vendors and customers,
Prime has determined that no critical business areas will be adversely affected
by Year 2000 issues, but continues to cooperate with its vendors and customers
to ensure a smooth transition. No contingency plan has been developed or deemed
necessary at this time and management believes that any costs and risks related
to Year 2000 compliance will not have a material adverse affect on the
liquidity or financial position of the Prime.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PRIME
The following table sets forth information concerning the shares of
Prime's common stock beneficially owned by each director and executive officer
of Prime and all directors and executive officers as a group and each holder of
over 5% of the outstanding common stock as of May 10, 1999.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES(1) PERCENT
- ----------------------------------------------------------------------- ----------- --------
<S> <C> <C>
Allan L.M. Barker, O.D(2). ............................................ 712,408 9.4%
D. Blair Harrold, O.D(2). ............................................. 712,408 9.4%
Martin E. Franklin(3) ................................................. 1,333,333 15.0%
Charlie W. Sydnor ..................................................... 183,245 2.4%
David A. Durfee(4) .................................................... 136,500 1.8%
Walter H. Wilkinson, Jr. .............................................. 0 *
Nicholas R. Rader, M.D. ............................................... 87,508 1.2%
Samuel B. Petteway(5) ................................................. 140,000 1.8%
Thomas S. Harbin, Jr. M.D.(6) ......................................... 107,483 1.4%
W. Andrew Maxwell, M.D. ............................................... 62,790 *
Steven B. Waite(7) .................................................... 518,334 6.9%
Julia C. Lewis(8) ..................................................... 152,000 2.0%
Kitty Hawk Capital Limted Partnership ................................. 553,334 7.3%
Marlin Capital, L.P.(3) ............................................... 1,333,333 15.0%
All executive officers and directors as a group (11 persons) .......... 3,627,675 39.4%
</TABLE>
- ----------
* Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within 60 days upon the exercise
of an option are treated as outstanding for purposes of determining
beneficial ownership and the percent beneficially owned by such
individual and for the executive officers and directors as a group.
(2) Does not include approximately 1,500,000 additional shares which may be
acquired by each of Dr. Barker and Dr. Harrold subject to the fulfillment
of certain conditions, under the Settlement Agreement. See "Related
Agreements--Settlement Agreement."
(3) Represents approximately 1,333,333 shares issuable in connection with
warrants held by Marlin Capital, L.P. Mr. Martin E. Franklin, who is a
director of Prime, is the Chairman, Chief Executive Officer and principal
stockholder of Marlin Holdings, Inc. which is the general partner of
Marlin Capital, L.P. Mr. Franklin disclaims beneficial ownership of such
shares. The address of Marlin Capital, L.P. is 555 Theodore Fremd Ave.,
Rye, New York 10584.
(4) Includes 15,000 shares subject to currently exercisable outstanding
options.
(5) Includes 60,000 shares subject to currently exercisable outstanding
options.
(6) Includes 15,000 shares subject to currently exercisable outstanding
options.
(7) Includes 65,000 shares subject to currently exercisable outstanding
options.
(8) Includes 150,000 shares subject to currently exercisable outstanding
options.
BUSINESS OF THE COMBINED COMPANY FOLLOWING CLOSING OF THE MERGERS
Following the closing of the mergers, the combined company will be an
integrated eye care company that will deliver diversified services to
ophthalmologists, optometrists and opticians and managed care plans that
provide eye care to their participants. The combined company engages in four
complementary business lines in the eye care marketplace:
(i) ophthalmology services, by which the combined company owns and
operates eye health centers and provides other services for
ophthalmologists and optometrists (the "Administrative Services" or
"administrative services agreement" model) and in independent physician
offices (the health services organization or "HSO" model) in various
states;
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(ii) retail optometry, by which the combined company owns and operates
retail optometry locations in Connecticut and North Carolina;
(iii) buying group services, by which the combined company provides
wholesale optical goods purchasing for licensed practitioners; and,
(iv) managed care services, by which the combined company contracts with
managed care plans to establish and manage networks of eye health care
providers on behalf of the enrolled members of its client managed care
plans.
These four classes of services are more fully described in the following
paragraphs.
Ophthalmology Services. The combined company manages owns and operates
multiple eye health centers in Connecticut. The combined company contracts with
OptiCare P.C., a professional corporation, for a range of services, including
administration, marketing, billing and other services. This professional
corporation is wholly owned by Dean J. Yimoyines, M.D., who will be the
Chairman of the Board, President and Chief Executive Officer of the combined
company and a beneficial holder of 5.9% of the common stock of the combined
company upon closing of the mergers. This professional corporation employs 26
ophthalmologists and 19 optometrists throughout Connecticut. The combined
company contracts with the professional corporation to provide services at
company-owned centers throughout the state. Management is provided under a
renewable 5-year administrative services agreement. The current term expires in
December 2000 and is expected to be renewed.
In the combined company's HSO model, the combined company provides a range
of specific services which individual ophthalmology and optometry practices can
purchase on a "menu" basis, including buying group access, marketing
assistance, information systems support, among others. At the expected time of
the closing of the mergers, management of the combined company expects to have
HSO contracts with 43 ophthalmology practices in 11 states.
As part of its ophthalmology services, the combined company owns and
operates three ambulatory surgery centers and one refractive laser center in
Connecticut. In its ambulatory surgical centers's, ophthalmic surgeons perform
a range of specialized eye care surgical procedures, including cataract
surgery. One of the ambulatory surgical centers is being converted from an
eye-care-only center to a multi-specialty facility, permitting ophthalmic
surgery and other types of non-eye-care surgery to be performed there. The
combined company does not have any agreements with any surgeons or practice
groups other than ophthalmologists at the present time. The combined company
charges a fee to patients (or their insurers, HMO's, Medicare, Medicaid or
other responsible third-party payors) for use of the ambulatory surgical
centers facility, and the surgeons are responsible for separately billing the
patients for surgical services.
The combined company has a formal quality improvement program which
includes responsibility and accountability for all federal, state and third
party corporate compliance issues. Connecticut based operations have received
full three-year accreditation from the Accreditation Association for Ambulatory
Health Care in Skokie, Illinois.
In addition to its intent to grow the practice management and ambulatory
surgical centers operations, the management of the combined company believes
there will be increasing demand for its HSO services from independent
physicians who are not interested in an administrative services agreement
model. Management of the combined company believes these independent
physicians, while unaffiliated with a national practice management company,
still require assistance in a range of administrative, marketing and, in
particular, information systems areas and have the potential to materially
benefit from the combined company's capabilities in these areas.
Retail Optometry. Upon closing of the mergers, the combined company will
own 50 retail optometry locations in Connecticut and North Carolina. The
combined company's locations are either free-standing or co-located with
ophthalmology or optometry practices. In its retail optometry locations, the
combined company provides all the customary optical goods and provides all the
billing, collection, and information systems to support the combined company's
optometry operations. In
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Connecticut, the combined company also has a complete manufacturing facility in
which lenses are manufactured, surfaced and ground to specifications and
supplied to all of the combined company's Connecticut optometry locations as
well as to network doctors for certain managed care contracts.
In addition to its owned and operated locations, the combined company has
30 franchised retail optometry locations in North Carolina and South Carolina.
In its franchise arrangements, the combined company provides a range of
marketing, managed care support and other services to the franchisee store in
return for a fixed fee.
Management of the combined company believes that large retail optometry
centers are an increasingly important initial entry point for eye care
patients. Beyond the economic contribution of the combined company's owned and
franchised stores, management of the combined company believes that its
optometry operations provide a strong strategic link and patient referral
source for its ophthalmic and other integrated services, particularly in North
Carolina and Connecticut.
Buying Group. The combined company operates one of the largest wholesale
eye products buying groups in the United States. This business unit,
headquartered in Rocky Mount, North Carolina, contracts with over 4,000
ophthalmology and optometry practices nationwide for the purchase of optical
and ophthalmic goods and medical supplies. In these arrangements, the combined
company enters into a non-exclusive account relationship with the buying
ophthalmologists and optometrists who join the buying group. These licensed
practitioners, by joining the buying group, agree to place `bill to -- ship to"
orders directly with a vendor, notifying the vendor that the licensed
practitioners are using the combined company's buying group services; the
vendor is then obligated to furnish a discount to the purchasers. The vendor
then ships the product directly to the practice and bills the combined company
at the predetermined price. The combined company derives revenue from the
buying group solely by the spread between its costs for merchandise and the
prices paid by group participants.
The combined company believes there is a significant opportunity to expand
the scope of its buying group services with additional products and with
professional service offerings. As the combined company expands its HSO and
managed care network operations, management of the combined company believes
the buying group business unit will benefit as well, demonstrating the value of
the combined company's strategy.
Managed Care Services. The combined company has managed care contracts in
nine states which are serviced by licensed practitioners under contract with
the combined company to provide comprehensive eye care services to over 2.5
million covered lives. The combined company's customers are generally managed
health plans, but the managed care business unit also provides these services
directly to employers.
In each managed care contract, the combined company creates and/or
contracts with networks of ophthalmologists and optometrists who provide eye
care services under a contract between the combined company and the managed
care plan. In these contracts, the combined company also performs credentialing
services, quality assurance and utilization review functions for the managed
care plans. The combined company is paid on either a fee for service or fixed
fee per covered live or "capitated" basis. Most contracts have a term of three
years and contain renewal provisions for additional one-year periods.
The combined company has developed proprietary systems to administer the
eye care of the managed care populations, including specialized analytic tools
which permit the combined company and its managed care plan customers to
understand the frequency and cost of services rendered to the managed care
plan's covered population. In addition, the combined company performs
prospective-outcome studies and other quality assessment studies on the care
rendered by its contracted network of providers.
The combined company's managed care credentialing functions are based on
Rocky Mount, North Carolina, and have received certification from the National
Committee for Quality Assurance in
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Washington, D.C. Such accreditation (or similar accreditation from certain
other recognized accreditation associations) is a requirement for obtaining
certain managed care contracts, or, if not expressly required, enhances the
quality of the combined company as seen by prospective managed care customers.
Management of the combined company believes there will be increasing
demand for specialized eye care management for populations enrolled in health
plans. This belief is based partially on demographic trends, and partially upon
the growing recognition among health plans that the treatment of eye health
lends itself to specialized management.
COMPETITION
The health care industry is highly competitive and subject to continual
changes in the methods by which services are provided and the manner in which
health care providers are selected and compensated. The combined company
believes that private and public reforms in the health care industry
emphasizing cost containment and accountability will result in an increasing
shift of eye care from highly fragmented, individual or small practice
providers to larger group practices, affiliated practice groups or other eye
care delivery systems. The combined company competes with other physician
practice management companies which seek to acquire the business assets of and
provide management services to eye care professionals, and some of these
competitors have substantially greater financial resources than the combined
company. Companies in other health care industry segments, such as managers of
other hospital-based specialties or currently expanding large group practices,
may become competitors in providing management to providers of eye care
services, and some them have financial and other resources substantially
greater than the resources of the combined company. Increased competition could
have a material adverse effect on the combined company's financial condition
and results of operations.
The bases for competition in the ophthalmology services area are pricing,
strength of the delivery network, strength of operational systems, the degree
of cost efficiencies and synergies, marketing strength, management information
systems, managed care expertise, patient access and quality assessment
programs. The combined company also competes with other providers of eye care
services, including HMO'S, PPO's and private insurers, for managed care
contracts, and many HMO's, PPO's and insurers have larger provider networks and
greater financial and other resources than the combined company. Managed care
organizations compete on the basis of administrative strength, size, quality
and geographic coverage of their provider networks, marketing abilities,
informational systems, the strategy of their managed care contracts, operating
efficiencies and price. The combined company also competes with other buying
group organizations for group members. Buying group organizations compete on
the basis of size and purchasing power of their member buying group, the
strength of their credit, and the strength of their supplier agreements and
relationships. The retail optometry business competes with numerous optometry
operators, including several national chains which have greater financial and
other resources than the combined company. Retail optometry operators compete
on price, service, product availability and location. See "Business of the
Combined Company Following Consummation of the Mergers."
GOVERNMENT REGULATION
The federal and state governments extensively regulate the health care
business. The combined company's business will be subject to numerous federal
and state laws and regulations, including the following:
Corporate Practice of Optometry and Ophthalmology. The laws of many states
prohibit corporations that are not owned entirely by eye care professionals
from
(a) employing eye care professionals,
(b) receiving for their own account reimbursements from third party
payors for health care services rendered by licensed
professionals,
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(c) controlling clinical decision-making, or
(d) engaging in other activities that constitute the practice of
optometry and/or ophthalmology.
To comply with these requirements, the combined company
(a) contracts with professional associations (which are owned by one
or more licensed optometrists or ophthalmologists), which in turn
employ or contract with licensed optometrists or ophthalmologists
to provide professional services to patients
(b) performs only non-professional services,
(c) does not represent to the public or its customers that it
provides professional eye care services, and
(d) does not exercise influence or control over the practices of the
eye care practitioners employed by the professional associations.
The agreements between the combined company and the eye care providers
specifically provide that all decisions required by law to be made by licensed
ophthalmologists or optometrists shall be made only by such licensed persons,
and that the combined company shall not engage in any services or activities
which would constitute the practice of ophthalmology or optometry.
The North Carolina State Board of Examiners in Optometry has expressed
concerns regarding contractual arrangements between business corporations and
professional associations or corporations of optometrists which may
"indirectly" violate the corporate practice prohibition or other North Carolina
law even though the arrangements do not involve direct employment of
optometrists. In certain situations, the following practices, among others,
have been determined by the Board, formally or informally, to be indirect
violations of the corporate practice prohibition:
o Business corporations which in effect take over the entire
decision-making process for the optometrist on matters such as hiring
capable clinical assistants, firing clinical assistant and
non-shareholder optometrist employees, and management companies which
exert an undue amount of influence over the billing and receipts of the
optometric practice, such that the practice is essentially paid a wage
by the company or vice-versa.
o Companies which attempt to exercise control over the sale of the assets
or shares of the optometric practice, such as setting the price at
which such assets or shares may be sold, delineating the entities or
class of entities to whom such assets or shares may be sold, and which
attempt to exercise control over the business records of the practice
in the interim between the cessation of the original optometric
practice and the beginning of the successor practice.
There is a risk that the Optometry Board could determine that the combined
company's arrangements with optometrists indirectly violate the corporate
practice prohibition. The combined company's administrative service agreements
with optometrists provide that they are not intended to represent the unlawful
practice of optometry and that the parties will take such steps, including
consultation with the Optometry Board and modification of the Management
Agreements, as are appropriate to implement such intention while preserving the
overall relationship of the parties. If the Optometry Board ever determine that
the Management Agreements must be modified and the parties are unable to agree
on a satisfactory modification, there could be a material adverse impact on the
combined company's current North Carolina management agreements and therefore,
the combined company's results of operations.
Fee-Splitting and Anti-kickback Law--State Law. Most states have laws
prohibiting the paying or receiving of any remuneration, direct or indirect,
that is intended to induce referrals for health care products or services. Many
states also prohibit "fee-splitting" by health care professionals with any
party except other health care professionals in the same professional
corporation or practice association. In most cases, these laws apply to the
paying of a fee to another person for referring a patient or otherwise
generating business, and do not prohibit payment of reasonable compensation for
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facilities and services (other than the generation of business), even if the
payment is based on a percentage of the revenues of the professional practice.
However, in some states, "fee-splitting" has been interpreted to include
payments by health professionals of a portion of fees in return for certain
services.
The North Carolina Medical Board stated in an Official Position Statement
(adopted in 1993 and amended in 1996) that sharing profits between a
non-physician and physician partner on a percentage basis is fee splitting and
is grounds for disciplinary action. In the past year, this issue has been
raised in several lawsuits in the state. In each of these cases, the court was
asked to find that the profit sharing arrangement between a physician or
physician group and management company is unethical and void as against public
policy. To date, no court in North Carolina has ruled on this issue. There is a
risk that a court could find that the combined company's arrangements with
physicians are unethical and void as against public policy and/or that the
Medical Board could determine that the combined company's arrangements with
physicians in the state constitute unethical fee-splitting and that these
physicians are subject to disciplinary action. This risks could also extend to
arrangements with optometrists since the Optometry Board has informally
indicated that it takes a similar view on fee-splitting.
North Carolina law also prohibits health care providers from paying any
type of financial compensation to any person, firm or corporation for
recommending or securing the provider's employment by a patient, or as a reward
for having made a recommendation resulting in the provider's employment by a
patient.
Fee-Splitting and Anti-kickback Law--Federal Law. Federal law prohibits
the offer, payment, solicitation or receipt of any form of remuneration in
return for the referral of patients covered by federally funded health care
programs such as Medicare and Medicaid, or in return for purchasing, leasing,
ordering or arranging for the purchase, lease or order of any product or
service that is covered by a federal program.
On April 15, 1998 the Office of Inspector General of the U.S. Department
of Health and Human Services (the "OIG") issued Advisory Opinion 98--4, which
raised questions about whether a percentage of revenue management fee
arrangement could be viewed as violating the federal anti-kickback law if the
manager is involved in helping generate revenues derived from Medicare and
Medicaid programs. Under the arrangement reviewed by the OIG, the manager's
duties included management and marketing services, negotiation and oversight of
health care contracts with various payors, including Federal healthcare
programs, and setting up provider networks that included physicians. Payments
to the management company included a "fair market value payment" for operating
services provided by the manager, a payment based on a percentage of the cost
of capital assets, and an additional 20% of net revenues of the practice for
management services. The OIG noted that since the manager was paid a percentage
of net revenue, including revenue from business derived from managed care
contracts arranged by the manager, that a potential technical violation of the
anti-kickback statute existed. The OIG further noted that since the manager
would presumably receive some compensation for management efforts in connection
with the development and operation of specialist networks, any evaluation by
the OIG would require information about the relevant financial relationships.
The OIG summarized that while the management arrangement "may" violate the
anti-kickback statute, a definitive conclusion would require a determination of
the parties' intent, which is beyond the scope of the advisory opinion process.
The combined company's services agreements are different from the
arrangements reviewed by the OIG in its advisory opinion. Therefore, management
of the combined company believes that the opinion is inapplicable to the
relationships between the combined company and its Affiliated Providers. As a
result, management has no present plans to change the terms of these
relationships because of the advisory opinion, but will continue to monitor any
clarifications or determinations in this area. If the forms of services
agreements utilized by the combined company are ever determined to be in
violation of the federal anti-kickback statute, it is likely that there would
be a material adverse impact on the combined company and its results of
operation.
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Advertising Restrictions. Many states, including Connecticut, prohibit
licensed eye care professionals from using advertising which includes any name
other than their own, or from advertising in any manner that is likely to lead
a person to believe that a non-licensed professional is engaged in the delivery
of eye care services. Certain of the combined company's forms of services
agreements provide that all advertising shall conform to these requirements,
but there can be no assurance that the interpretation of the applicable laws or
the combined company's advertising will not inhibit the combined company or
result in legal violations that could have a material adverse effect on the
combined company.
Insurance Licensure. Most states impose strict licensure requirements on
health insurance companies, HMO's, and other companies that engage in the
business of insurance or pre-paid health care. In most states, these laws do
not apply to discounted fee-for-service arrangements or networks that are paid
on a capitated basis, i.e. based on the number of covered persons the network
is required to serve without regard to the actual rendering of eye care service
to patients, provided that the association with which the network provider is
contracting is a licensed health insurer or HMO. There are exceptions to these
rules in some states. For example, certain states require a license for a
capitated arrangement with any party unless the risk-bearing association is a
professional corporation that employs the eye care providers. If the combined
company is required to become licensed under these laws, the licensure process
can be lengthy and time consuming and, unless the regulatory authority permits
the combined company to continue to operate while the licensure process is
progressing, the combined company could suffer losses of revenue that would
result in material adverse changes in its business while the licensure process
is pending. In addition, many of the licensing requirements mandate strict
financial and other requirements which the combined company may not immediately
be able to meet. Once licensed, the combined company would be subject to
continuing oversight by and reporting to the respective regulatory agency.
Regulation of the Combined Company's HMO Subsidiaries. The combined
company holds two single service HMO licenses, one in North Carolina and one in
Texas. The two states require the filing of quarterly and annual reports as
well as periodic on-site audits.
The Florida, North Carolina and Texas managed care business is highly
regulated. Such regulation can include, but is not limited to, caps on
permissible premiums charged to customers; mandated benefits; and rules
governing relationships with, and payments to, network providers. Each of these
states also require pre-approval from their respective Departments of Insurance
prior to allowing a significant change of ownership control to take place.
There are no guarantees that approval will be forthcoming prior to the
effective time of the mergers.
In North Carolina, in addition to adequate reserves for unpaid bills and
unearned members' fees, an HMO must, until such reserves equal 3 times its
average monthly expenditures, maintain reserves equal to 4% of the first
$200,000 of members' fees, 2% of the next $200,000 of members' fees, and 1% of
all members' fees in excess of $400,000. This reserve may not exceed 6 times
the HMO's average monthly expenditures.
In Texas, a single service HMO must maintain a reserve of $500,000, net of
accrued unpaid liabilities. However, if such a reserve is currently
unavailable, the HMO must achieve and maintain a current reserve of $200,000;
this reserve must increase to $275,000 by December 31, 1999; $350,000 by
December 31, 2000; $425,000 by December 31, 2001; and $500,000 by December 31,
2002.
Third Party Administration Licensing. Some states require licensing for
companies providing administrative services in connection with managed care
business. The combined company holds a third-party administrator license in
Florida. The combined company intends to seek such licenses in those states
where it is available for eye care networks. However, the combined company may
not be able to meet such requirements in all cases, and this may have a
material adverse effect on the combined company's business and operating
results or inhibit the growth of the combined company's business.
Physician Incentive Plans. Medicare regulations impose certain disclosure
requirements on managed care networks that compensate providers in a manner
that is related to the volume of
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services provided to Medicare patients (other than services personally provided
by the provider). If such incentive payments exceed 25 percent of the
provider's potential payments, the network is also required to show that the
providers have certain "stop loss" financial protections and to conduct certain
Medicare enrollee surveys.
"Any Willing Provider" Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
qualified and credentialed provider who is willing to abide by the terms of the
network's contracts and/or prohibit termination of providers without cause.
Such laws would limit the ability of the combined company to develop effective
managed care networks in such states.
Antitrust Laws. The combined company is subject to a range of antitrust
laws that prohibit anti-competitive conduct, including price fixing, concerted
refusals to deal and divisions of markets. Among other things, these laws limit
the ability of the combined company to build smaller, more competititive
provider networks that rely on exclusive services agreements with separate
practice groups that compete with one another in the same geographic market.
This does not apply to professionals within the same practice group. In
addition, these laws prevent acquisitions of business assets that would be
integrated into existing professional associations if such acquisitions
substantially lessen competition or tend to create a monopoly.
The laws described above have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation. They are enforced by
regulatory agencies that are vested with broad discretion in interpreting their
meaning. The combined company's agreements and activities have not been
examined by federal or state authorities under these laws and regulations.
There can be no assurance that review of the combined company's business
arrangements will not result in determinations that adversely affect the
combined company's operations or that certain material agreements between the
combined company and eye care providers or third-party payors will not be held
invalid and unenforceable. In addition, these laws and their interpretation
vary from state to state. The regulatory framework of certain jurisdictions may
limit the combined company's expansion into, or ability to continue operations
within, such jurisdictions if the combined company is unable to modify its
operational structure to conform with such regulatory framework. Any limitation
on the combined company's ability to continue operating in the manner in which
OptiCare and Prime have operated prior to the mergers could have an adverse
effect on the combined company.
LITIGATION
See "Business of OptiCare Prior to the Mergers -- Litigation" and
"Business of Prime Prior to the Mergers -- Litigation."
COMBINED COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
On a pro forma basis combining the results of Prime and OptiCare as if the
mergers had occured on January 1, 1999, the combined company's sales for the
three months ended March 31, 1999 were $29.2 million. The compensation expense
for the quarter was $8.3 million, consisting of physician and employee
compensation expense. The other operating expenses totalled $19.1 million.
Interest expense was $.6 million and depreciation and amortization expense was
$1.0 million for the quarter ended March 31, 1999. The pro forma results assume
a statutory tax rate of 40%.
On a pro forma basis, combining the results of Prime and OptiCare as if
the mergers had occurred on January 1, 1998, the combined company's sales for
the year ended December 31, 1998 were $99.4 million. The compensation expense
was $29.5 million consisting of physician and other employee compensation
expenses. Other operating expenses of $66.7 million do not include any
estimates of synergies or additional costs associated with public company
operations. Depreciation and amortization was $3.8 million which included $1.3
million of amortization of intangibles estimated to
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be recorded in conjunction with the mergers. Management has estimated the
useful life of the goodwill to be 25 years. The pro forma balance sheet shows
bank debt of approximately $23.6 million in addition to seller debt of
approximately $6.2 million and convertible and other subordinated debt of
approximately $6.4 million at assumed interest rates ranging between 7.5% for
the bank and seller debt and 8% to 9% for the subordinated debt. Accordingly,
the pro forma interest expense for the year ended December 31, 1998 was $2.6
million. The pro forma results assume a statutory tax rate of 40%.
Liquidity
Upon closing of the mergers and related transactions, the combined company
anticipates bank indebtedness of approximately $24 million and net equity of
approximately $4 million. Bank Austria, Prime's current lender, is working with
Prime to amend its existing credit agreement to provide a combination term and
revolving facility to the combined company. As of December 31, 1998 and
currently, Prime is in default of certain of its financial covenants and the
entire outstanding balance of its bank debt has therefore been classified as
short-term. It is anticipated that the amended credit agreement will provide
for no maturities within one year. It is also anticipated that substantially
all of the combined company's assets will be pledged to secure this new debt
and certain financial covenants will be required. In addition to the
anticipated bank debt described above, the combined company will have
approximately $12 million of unsecured subordinated debt subject to market
interest rates. The resulting total indebtedness will therefore be
approximately $36 million.
In the event of default of its financial covenants, the bank may foreclose
on its security interest in the combined company's assets, which would have a
material adverse effect on the results and financial position of the combined
company. Furthermore, there can be no assurance that the combined company's
debt to equity ratio will improve in the short-term.
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MANAGEMENT OF THE COMBINED COMPANY
FOLLOWING CLOSING OF THE MERGERS
The discussion in this section of the Proxy Statement/Prospectus sets
forth information about the combined company if and when the mergers are
consummated.
DIRECTORS
The nominees, their ages, and the positions they will hold if the mergers
are consummated, and certain other information about the nominees, is set forth
in "Special Meeting--Proposal 1--Director Election Proposal."
EXECUTIVE OFFICERS OF THE COMBINED COMPANY
The executive officers of Saratoga following the Mergers are expected to
be the following persons.
Dean J. Yimoyines, M.D.--Chairman of the Board, President and Chief
Executive Officer
Steven L. Ditman--Executive Vice President and Chief Financial Officer
Allan L. M. Barker, O.D.--President, Buying Group Division
D. Blair Harrold, O.D.--President, Retail Optometry Division
Samuel B. Petteway--President, Managed Care Division
The business backgrounds of Dr. Yimoyines, Mr. Ditman and Dr. Barker are
set forth in "Proposal 1--Director Election Proposal." The business backgrounds
of Dr. Harrold and Mr. Petteway are set forth below.
Dr. Harrold has served as a senior executive and director of Prime since
its acquisition of Consolidated Eye Care, Inc. ("Consolidated") in July of
1996. Dr. Harrold founded Consolidated in 1989 and served as its Co-President
until its acquisition by Prime. Dr. Harrold is a licensed optometrist, having
graduated from Ohio State University with a B.S. in physiological optics and a
Doctor of Optometry degree in 1971. Dr. Harrold has also served as President of
Optometric Eye Care Center, PA, a North Carolina professional association. Dr.
Harrold is a member of the American Optometric Association, the North Carolina
State Optometric Association and is a Fellow in the American Academy of
Optometry.
Mr. Petteway has been President of Prime's managed care business
operations since July 1996 and, prior to Prime's acquisition of Consolidated
Eye Care, Inc., ("Consolidated"), the managed care business operations of
Consolidated since 1989. Currently, Mr. Petteway serves as Chairman of the
Board and Chief Executive Officer for both Association of Eye Care Centers
Total Vision Health Plan, Inc. and AECC Total Vision Health Plan of Texas,
Inc., which are both owned by Prime. Prior to 1989, Mr. Petteway was President
of Strategic Health Services, providing consulting services to hospitals,
physicians, pharmacies and companies. Mr. Petteway graduated from the
University of North Carolina at Chapel Hill with a Bachelor of Science in
Pharmacy in 1979 and received a Masters in Business Administration with
Distinction from Campbell University in 1985.
COMMITTEES OF THE BOARD OF DIRECTORS
The nominees for the Board of Directors following closing of the mergers
expect to designate two committees of the Board of Directors:
o Compensation Committee, which will administer the Performance Stock
Program and establish compensation policy for senior management; the
Compensation Committee will have three members, who will not be
officers, employees or principal stockholders of the combined company;
and
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o Audit Committee, which will recommend the selection of independent
auditors to the Board of Directors, review their reports to management,
and meet from time to time as they deem necessary or advisable to
review the combined company's systems of internal financial controls;
the Audit Committee will have three members, who will not be officers,
employees or principal stockholders of the combined company; at their
discretion from time to time, the Audit Committee may invite the
principal financial officer to participate in meetings of the
Committee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY AFTER
THE MERGERS
None of the proposed executive officers or directors of the combined
company following the mergers received any compensation from Saratoga prior to
the merger.
The provisions of the employment agreements of Messrs. Yimoyines and
Ditman are summarized in "Employment Agreements for Certain Executive
Officers." Employment agreements with Drs. Barker and Harrold and Mr. Petteway
are currently being negotiated and have not been finalized as of the date of
this proxy statement/prospectus.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the shares of
Saratoga's common stock beneficially owned by each director and executive
officer of Saratoga and all directors and executive officers as a group and
each holder of over five percent of the outstanding common stock as of June 21,
1999, and as it is expected to be upon closing of the mergers.
<TABLE>
<CAPTION>
PRESENT (BEFORE MERGERS)
(1)(2) AFTER MERGERS(1)(3)
---------------------------- -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT
- ----------------------------------------------- ---------------- --------- ------------ --------
<S> <C> <C> <C> <C>
Thomas F. Cooke ............................... 151,059(4) 64% 151,059 1.6%
Kevin M. Smith ................................ 15,513(5) 6.9% 15,513 *
All executive officers and directors as a
group (2 persons before the mergers) ......... 166,572 70.8% -- --
Allan L.M. Barker, O.D. ....................... -- -- 223,268 2.5%
D. Blair Harrold, O.D. ........................ -- -- 223,268 2.5%
Martin E. Franklin(6) ......................... -- -- 637,246 7.0%
Samuel B. Petteway(7) ......................... -- -- 43,876 *
Dean J. Yimoyines M.D.(8) ..................... -- -- 534,286 5.9%
Steven L. Ditman(9) ........................... -- -- 72,977 *
John F. Croweak(10) ........................... -- -- -- --
Anthem Blue Cross Blue Shield of
Connecticut(11) .............................. -- -- 1,322,892 14.6%
Oxford Health Plans(12) ....................... -- -- 775,996 8.6%
Fred Nazem (13) ............................... -- -- 474,243 5.3%
Bank Austria Creditanstalt Corporate
Finance, Inc.(14) ............................ -- -- 533,436 5.7%
All executive officers and directors as a
group (7 persons after the mergers) .......... -- -- 1,734,921 18%
</TABLE>
- ----------
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within 60 days upon the exercise
of an option are treated as outstanding for purposes of determining
beneficial ownership and the percent beneficially owned by such
individual and for the executive officers and directors as a group.
(2) Based on 225,000 shares outstanding after the reverse split but before
the mergers and the issuance of 307,700 shares to Bank Austria
Creditanstalt Corporate Finance, Inc.
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(3) Based on 9,000,000 shares expected to be outstanding after the reverse
split and the mergers.
(4) Includes warrants to purchase 100,000 shares (before the reverse split
and the mergers) of Saratoga common stock, which were exercisable on or
before May 26, 1999; includes 109,148 (before the reverse split and the
mergers) shares held by June Cooke, Mr. Cooke's spouse, of which Mr.
Cooke disclaims beneficial ownership.
(5) Includes 20,000 shares (before the reverse split and the mergers) held by
Sandra Smith, Mr. Smith's spouse, of which Mr. Smith disclaims beneficial
ownership.
(6) The shares are held by Marlin Capital, L.P. Mr. Martin E. Franklin, who
is a director of Prime, is the Chairman, Chief Executive Officer and
principal stockholder of Marlin Holdings, Inc. which is the general
partner of Marlin Capital, L.P. Mr. Franklin disclaims beneficial
ownership of such shares. The address of Marlin Capital, L.P. is 555
Theodore Fremd Ave., Rye, New York 10584.
(7) Includes 18,804 shares subject to currently exercisable outstanding
options.
(8) Includes 247,825 shares held by Linda Yimoyines, wife of Dean J.
Yimoyines, and 286,461 shares issuable upon the exercise of currently
exercisable outstanding options. The address of Dr. Yimoyines is c/o
OptiCare Eye Health Centers, Inc., 87 Grandview Avenue, Waterbury,
Connecticut 06708.
(9) Represents 72,977 shares issuable upon the exercise of currently
exercisable oustanding options.
(10) Excludes shares held by Anthem Blue Cross Blue Shield of Connecticut, as
to which Mr. Croweak disclaims beneficial ownership. Mr. Croweak is
Chairman of the Board of Directors of Anthem Blue Cross Blue Shield of
Connecticut. The address of Anthem Blue Cross Blue Shield of Connecticut
is 370 Bassett Road, North Haven, CT 06473.
(11) Includes 144,979 shares subject to currently exercisable warrants.
(12) Includes 337,514 shares subject to currently exercisable warrants. The
address of Oxford is 800 Connecticut Avenue, Norwalk, CT 06854.
(13) Includes 275,618 shares held by Nazem OptiCare Partners, L.P., a limited
partner of which Mr. Nazem is the general partner. Mr. Nazem disclaims
beneficial ownership of such shares. Also includes 198,627 shares subject
to currently exercisable warrants. The address of Mr. Nazem is c/o Nazem
OptiCare Partners, L.P., 645 Madison Avenue, New York, NY 10022.
(14) Includes 307,700 shares of Common Stock issuable pursuant to the term
sheet. See "Related Agreements -- New Credit Facility". Also includes
warrants to purchase 69,036 shares of common stock. The address of Bank
Austria Creditanstalt Corporate Finance, Inc. is Two Ravinia Drive, Suite
168, Atlanta, GA 30346.
EMPLOYMENT AGREEMENTS FOR CERTAIN EXECUTIVE OFFICERS
The combined company will, prior to the effective time of the mergers,
enter into employment agreements with the following persons, who will be
executive officers of the combined company:
Dean J. Yimoyines, M.D., Chairman of the Board, Chief Executive Officer
and President
Steven L. Ditman, Executive Vice President and Chief Financial Officer
Allan L.M. Barker, O.D., President, Buying Group Division
D. Blair Harrold, O.D., President, Retail Optometry Division
Samuel Petteway, President, Managed Care Division
The terms and conditions of their respective employment agreements are
summarized below:
Dean J. Yimoyines. Effective upon the closing of the mergers, the combined
company will enter into an employment agreement with Dean J. Yimoyines, M.D.,
under which Dr. Yimoyines will serve as Chairman of the Board, Chief Executive
Officer and President of the combined company. The principal provisions of the
agreement are as follows:
o Duration: 3 years, automatically renewable for subsequent one year
terms unless either party gives contrary written notice six months
prior to the next expiration date, subject to termination by Dr.
Yimoyines without cause at any time during the term of the agreement
upon six months' notice.
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o Base annual salary: $250,000
o Guaranteed annual bonus: $160,000 or such greater amount as the board
of directors may authorize.
o Performance-based bonuses: as may be authorized by the board of
directors,
(a) targeted to an annual cash bonus of 50% of base salary plus
guaranteed bonus, subject to the achievement of goals established for
each calendar year by the board or the compensation committee and
(b) additional bonuses for achievement of additional goals which,
combined with the targeted bonus, may be up to 100% of base salary
and guaranteed bonus.
o Business Use of Company Car: A company car and its associated expenses
is provided for business use.
o Disability: full base salary and guaranteed bonus for first six months;
insurance thereafter at the company's expense for full salary and
guaranteed bonus.
o Severance payable:
(1) if terminated on account of disability or without cause by the
combined company, or if the agreement is not renewed at the end of
the initial 3-year term, a lump sum in an amount equal to three times
total compensation for the year prior to termination, plus
continuation of all benefits for a period of three years after
termination.
(2) if during the three year period following a change in control, Dr.
Yimoyines' duties are materially diminished, his principal place of
employment is moved more than 50 miles, or his employment is
terminated on account of disability or by the combined company
without cause or by now-renewal of the agreement, or
(3) if Dr. Yimoyines voluntarily terminates his employment during the
one year period following a change in control,
then Dr. Yimoyines shall receive severance pay equal to three
times total compensation for the year prior to termination.
Restrictive covenant: provided that Dr. Yimoyines' employment is not
terminated at the election of the combined company (including a termination
on account of non-renewal after the initial 3-year term):
(1) during the term of the agreement and for a period of 18 months after
the date of termination of employment, Dr. Yimoyines shall not engage
in the practice of any branch of ophthalmology or ophthalmic surgery
in any capacity within the State of Connecticut or in that portion of
any other state where the combined company actively conducts
business.
(2) for the 12 month period following termination, Dr. Yimoyines will
not render services to any organization which is engaged in
(a) researching, developing, marketing or selling any eye wear or eye
care product, process or service or
(b) management of an ophthalmic medical practice which competes with
a product, process or service of the combined company; provided,
however, that the non-compete covenant will not apply if .
Employment Agreement with Steven L. Ditman. Effective upon the closing of
the mergers, the combined company will enter into an employment agreement with
Steven L. Ditman under which Mr. Ditman will serve as Chief Financial Officer
and Executive Vice President of the combined company. The principal provisions
of the agreement are as follows:
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o Duration: 3 years, automatically renewable for subsequent one year
terms unless either party gives contrary written notice six months
prior to the next expiration date, subject to termination by Mr. Ditman
without cause at any time during the term of the agreement upon six
months' notice.
o Base annual salary: $175,000
o Performance-based bonuses: as may be authorized by the board of
directors,
(a) targeted to an annual cash bonus of 40% of base salary, subject to
the achievement of goals established for each calendar year by the
board or the compensation committee and
(b) additional bonuses for achievement of additional goals, which when
combined with the targeted bonus may be up to 100% of base salary.
o Car allowance: $600 per month.
o Disability: full base salary for first three months.
o Death benefit: $150,000.
o Severance pay: a lump sum in an amount equal to two times his total
compensation for the year prior to such termination, plus the benefits
he was receiving prior to termination for a period of two years after
termination, if his employment is terminated as follows:
(1) the combined company does not renew the agreement at the end of the
initial 3-year term;
(2) the combined company terminates Mr. Ditman's employment agreement
without cause;
(3) Mr. Ditman voluntarily terminates his employment during the one year
period following a change of control;
(4) during the three year period following a change in control, Mr.
Ditman's duties are materially diminished, his principal place of
employment is moved more than 50 miles, or his employment is
terminated by the combined company without cause or by non-renewal of
the agreement.
o Restrictive covenant: During the term of the agreement and for a period
of 18 months after termination, Mr. Ditman will not render services
directly or indirectly to any organization which is engaged in
(1) researching, developing, marketing or selling any eye wear or eye
care product, process or service which competes with the combined
company, or
(2) managing the business practice of ophthalmologists, optometrists or
opticians.
We anticipate that the combined company will also enter into employment
agreements with each of Drs. Barker and Harrold and Mr. Petteway effective upon
the closing of the mergers, the terms of which we are discussing with those
individuals as of the date of this prospectus/proxy statement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relating to OptiCare
OptiCare has entered into a Professional Services and Support Agreement
with OptiCare P.C. effective December 1, 1995 under which OptiCare P.C.
provides OptiCare with ophthalmology and optometry services on an exclusive
basis, and OptiCare provides the facilities and administrative services
necessary to support the ophthalmology and optometry practice. The term of the
agreement is five years and is automatically renewable. Under the agreement
OptiCare bills, collects, and receives payment for medical services rendered by
the medical staff of OptiCare P.C. OptiCare pays to OptiCare P.C. compensation
in accordance with OptiCare P.C.'s annual compensation plan. The sole
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shareholder of OptiCare P.C. is Dean J. Yimoyines, the Chairman, Chief
Executive Officer and a director of OptiCare, who will become the Chief
Executive officer and a director of the combined company upon closing of the
mergers.
OptiCare is the tenant under a Lease Agreement dated September 1, 1995
with O.C. Realty Associates Limited Partnership, as landlord. The leased
premises are located in New Milford, Connecticut and are used for the practice
of ophthalmology and optometry and incidental activities such as the sale of
eye glasses and corrective lenses. The term of the lease is fifteen years.
Under the Lease Agreement, during the first five years of the leasehold term,
OptiCare pays a minimum annual rental to O.C. Realty Associates Limited
Partnership of $50,400, subject to adjustment at the end of the first five
years and every five years thereafter plus all taxes, assessments, utilities
and insurance related to the property being leased. In addition, OptiCare has
guaranteed the mortgage of O.C. Realty Associates Limited Partnership, the
amount of which was approximately $222,000 as of December 31, 1998. Dean
Yimoyines, John Yimoyines (brother of Dean Yimoyines), and Steven Ditman, the
Chief Operating Officer and a director of OptiCare, who will become the
Executive Vice President, Chief Financial Officer and a director of the
combined company following the Mergers, each owns a 4.11% interest in O.C.
Realty Associates Limited Partnership.
OptiCare is the tenant under a Lease Agreement dated September 1, 1995
with French's Mill Associates, as landlord. The leased premises are located in
Waterbury, Connecticut and are used for the practice of ophthalmology and
optometry, an ambulatory surgery center, and incidental activities such as the
sale of eye glasses and corrective lenses. The term of the lease is fifteen
years. Under the Lease Agreement, during the first five years of the leasehold
term, OptiCare pays annual rental to French's Mill Associates of $604,000,
subject to adjustment at the end of the first five years and every five years
thereafter. In addition, OptiCare pays all taxes, assessments, utilities and
insurance related to the property being leased. Linda Yimoyines and John
Yimoyines, the wife and brother, respectively, of Dean Yimoyines, each owns a
14.28% interest in French's Mill Associates.
OptiCare is the tenant under a Lease dated September 30, 1997 with
French's Mill Associates II, LLP, as landlord. The leased premises are located
in Waterbury, Connecticut and are the location of OptiCare's main headquarters.
The term of the lease is fifteen years. Under the lease, during the first five
years of the leasehold term, OptiCare pays a minimum annual rental to French's
Mill Associates II, LLP of $76,800, subject to adjustment at the end of the
first five years and every five years thereafter. In addition, OptiCare pays
all taxes, assessments, utilities and insurance related to the property being
leased. Linda Yimoyines and John Yimoyines each owns a 12.5% interest in
French's Mill Associates II, LLP.
O.N.B. Associates owns approximately a 25% interest in Cross Street
Medical Building Partnership, the landlord under a lease dated September 22,
1987 and a Lease Extension Agreement dated December 12, 1997 with Ophthalmic
Physicians and Surgeons, P.C., an entity that merged with and into OptiCare in
1987. The leased premises are located in Norwalk, Connecticut and are used for
the practice of ophthalmology and optometry, an ambulatory surgery center, and
incidental activities such as the sale of eyeglasses and corrective lenses. The
term of the lease is three years. Under the Lease, OptiCare pays a minimum
annual rental to Cross Street Medical Building Partnership of $427,600. In
addition, OptiCare pays all taxes, assessments, utilities and insurance related
to the property being leased. Linda Yimoyines and John Yimoyines each own an
11% interest in O.N.B. Associates and Steven Ditman owns a 1.5% interest in
O.N.B. Associates.
OptiCare is also the tenant under a second Lease Agreement dated September
1, 1995 with French's Mill Associates II, L.L.P. as landlord. The leased
premises are located in Waterbury, Connecticut and are also part of OptiCare's
main headquarters. The term of the lease is fifteen years. Pursuant to the
Lease Agreement, during the first five years of the leasehold term, OptiCare
pays a minimum annual rental to French's Mill Associates II of $54,210, subject
to adjustment at the end of the first five years and every five years
thereafter. In addition, OptiCare pays all taxes, assessments, utilities and
insurance related to the property being leased.
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OptiCare is currently negotiating a lease for 10,000 square foot of space
with French's Mill Associates II, L.L.P., a portion of which will be used as
OptiCare's new corporate headquarters.
Under the terms of a Stock Purchase Agreement dated as of October 15, 1997
among OptiCare and Oxford Health Plans, Inc., Nazem OptiCare Partners, LP,
Eugene W. Huang and Christopher Kaufman, as purchasers, OptiCare sold, for an
aggregate purchase price of $6,000,017:
o to Oxford, 37,361 Class A preferred shares and warrants to purchase
28,758 Class B preferred shares,
o to Nazem OptiCare Partners, 23,484 Class A preferred shares,
o to Huang, 2,669 Class A preferred shares, and
o to Kaufman, 534 Class A preferred shares.
In connection with the sale of stock described above and a contemporaneous
recapitalization of OptiCare, the prior equity interest in OptiCare of Anthem
Health Plans, Inc. was converted into 88,706 shares of Class A preferred stock
and 11,658 shares of Class B preferred stock, representing together
approximately 20.6% of the fully-diluted capital stock of OptiCare. In
addition, OptiCare issued to Anthem warrants to acquire 12,353 shares of Class
B preferred stock, representing an additional 2.5% of the fully-diluted capital
stock of OptiCare. The stock and warrants so held by Anthem will be exchanged
in the merger for common stock and warrants in the combined company in
accordance with the terms and conditions of the merger agreement. Mr. John F.
Croweak, who is currently a director of OptiCare and will become a director of
the combined company upon the closing of the mergers, is Chairman of the Board
and a director of Anthem Health Plans, Inc.
On October 15, 1997, OptiCare also entered into a three-year Consulting
Agreement with Mr. Fred Nazem, who is currently a director of OptiCare and
beneficial owner of in excess of 5% of the outstanding capital stock of
OptiCare. OptiCare paid to Mr. Nazem a sum of $180,000 in consideration for
consulting services under that agreement, and issued to Mr. Nazem and two of
his associates warrants to purchase an aggregate of 19,911 shares of Class B
preferred stock. These warrants will be exchanged in the merger for warrants in
the combined company, as described above.
OptiCare has three capitated arrangements with Anthem Health Plans, Inc.
d/b/a Anthem Blue Cross and Blue Shield of Connecticut, the holder of more than
5% of OptiCare's issued and outstanding capital stock, for three different
BlueCare lines of business. Under the first arrangement, an Eye Care Services
Agreement effective as of November 1, 1998, OptiCare provides eye care services
to Anthem commercial HMO members. The second arrangement, a Contracting
Provider Services Agreement effective as of May 1, 1997, is for the Medicare +
Choice, previously referred to as Medicare risk, line of business. Anthem's
Medicare + Choice program provides services, under a contract with the Health
Care Financing Administration, to Medicare beneficiaries. Under the Contracting
Provider Services Agreement, OptiCare provides eye care services to the
Medicare beneficiaries. The third arrangement with Anthem, a Vision Care
Capitation Agreement effective as of September 1, 1995, is for the Medicaid
line of business. Under the Vision Care Capitation Agreement, OptiCare provides
eye care to BlueCare Family Plan members.
OptiCare is also a party to a participating provider agreement with Oxford
Health Plans, Inc., a holder of in excess of five percent of OptiCare's
outstanding capital stock, under which OptiCare provides medical services to
the insured members of Oxford's insurance plans and receives fees from Oxford
for these services. This agreement may be terminated by either party upon 90
days written notice.
Relating to Prime
Prime is a party to the Settlement Agreement with Drs. Barker and Harrold
(see "Related Agreements--Settlement Agreement"). Pursuant to the Settlement
Agreement, Drs. Barker and Harrold are to receive $2.5 million in cash, subject
to various conditions.
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Consolidated Eye Care, Inc. (a subsidiary of Prime) is guarantor for a
$298,530 liability of Kirkland Drive Associates, an entity which, at the time
of the guarantee, was owned 50% by Prime and 50% by Drs. Barker and Harrold,
two officers and directors of Prime. Kirkland Drive Associates is currently
owned 100% by Drs. Barker and Harrold.
Pursuant to the terms of the Stock Purchase Agreement (the "Preferred
Stock Agreement"), dated as of June 4, 1998, between Prime and Marlin Capital,
L.P. ("Marlin"), Prime sold to Marlin (i) 8,000 shares of Prime's Class A
Preferred Stock and (ii) warrants to purchase 1,333,333 shares of Prime's
common stock for an aggregate purchase price of $8,000,000. Pursuant to the
terms of the Certificate of Designation of Class A Preferred Stock of Prime,
the holders of the Series A Preferred Stock are entitled to receive dividends
on a cumulative basis, whether or not declared, out of funds legally available
therefore, at the guaranteed annual rate of [30%] over the first four years of
the Preferred Stock Agreement. The number of shares of Prime common stock
purchasable and the exercise price of the warrant are subject to adjustment in
order for the holders to achieve the guaranteed rate of return. The Preferred
Stock Agreement also contains restrictive financial covenants which Prime has
violated as of December 31, 1998. As a result of the violations, the preferred
stockholder has the right to redeem the preferred stock as of December 31,
1998. Mr. Martin E. Franklin, who is a current director of Prime and a nominee
to the Board of Directors of the Combined Company commencing upon the closing
of the mergers, is the Chairman, Chief Executive Officer and principal
stockholder of Marlin Holdings, Inc., which is the general partner of Marlin
Capital, L.P., a private investment partnership since October 1996.
In connection with the mergers, the 8,000 shares of Prime Class A
Preferred Stock and warrants owned by Marlin shall be exchanged for Prime
common stock (which will then be exchanged for Saratoga common stock in the
mergers), and two promissory notes (one convertible into common stock) of
Saratoga in the aggregate principal amount of $6,000,000. See "Additional
Agreements--Treatment of Prime Class A Preferred Stock."
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DESCRIPTION OF THE SARATOGA CAPITAL STOCK
The authorized capital stock of Saratoga consists of 5,000,000 shares of
preferred stock and 50,000,000 shares of common stock, $0.001 par value per
share.
Preferred Stock. No preferred stock of Saratoga is outstanding or
committed to be outstanding as a consequence of the mergers or otherwise. The
Saratoga preferred stock is issuable as determined from time to time by the
Board of Directors, in one or more series, and the Board is authorized to fix
the rights, preferences, privileges and restrictions granted to or imposed upon
any unissued and undesignated shares of preferred stock and to fix the number
of shares constituting any series and the designations of such series, without
any further vote or action by the stockholders. Although it presently has no
intention to do so, the Board, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power or other rights of the holders of the Common Stock. The
issuance of preferred stock may also have the effect of delaying, deferring or
preventing a change in control of Saratoga. As noted in "Combined Company
Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operations," the combined company is expected to need additional
financing in the foreseeable future, and the board of directors may at any time
after closing of the mergers issue preferred stock to obtain funds for the
combined company's business.
Common Stock. As of the Record Date, there were 3,465,292 shares of
Saratoga common stock outstanding (before giving effect to the proposed reverse
split). If the reverse split becomes effective, the number of shares of
outstanding common stock (before issuance of common stock in the mergers) will
be 225,000, and the additional number of shares to be issued in the mergers
will be 8,775,000. In addition, the combined company will reserve an aggregate
of 705,680 shares of common stock to be issued under options on securities of
OptiCare and Prime for which the combined company will be responsible after the
mergers and additional shares to be issued pursuant to the Performance Stock
Program and the Employee Stock Purchase Plan. Saratoga's common stock has not,
prior to the date hereof, been listed on any stock exchange but from time to
time has been reported by the NASD on the OTC Bulletin Board under the symbol
"SRIK." Saratoga has applied to the American Stock Exchange for listing.
However, if the Saratoga common stock is not accepted for listing on either
Amex or NASDAQ, the parties intend to have the Saratoga common stock continue
to be traded over the counter and reported on the OTC Bulletin Board. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be outstanding upon completion of the mergers will be
fully paid and non-assessable. Other principal terms, rights and privileges of
the common stock are as follows.
Voting: Holders of the common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders.
They may not cumulate votes in connection with the election of
directors.
Dividends: Holders of the common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time
by the Board of Directors in its absolute discretion out of
funds legally available therefor, subject to the payment or of
dividends on preferred stock, if any. (There is no preferred
stock outstanding at the present time.)
Liquidation: In the event of a liquidation, dissolution or winding up of
Saratoga, holders of the common stock are entitled to share
ratably in all assets remaining after payment of liabilities.
Pre-emptive rights, conversion rights, subscription rights, sinking fund
provisions:
None.
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Limitation of Directors' and Officers' Liability. The certificate of
incorporation of Saratoga eliminates the liability of directors to the fullest
extent permissible under Delaware law, as such law exists currently or as it
may be amended in the future. Under the Delaware General Corporation Law, such
provision may not eliminate or limit director monetary liability for:
(i) breaches of the director's duty of loyalty to the corporation or
its stockholders;
(ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
(iv) transactions in which the director received an improper personal
benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve Saratoga or its directors from
the necessity of complying with, federal or state securities laws, or affect
the availability of non-monetary remedies such as injunctive relief or
rescission.
EXCHANGE AGENT, TRANSFER AGENT AND REGISTRAR
The Exchange Agent, Transfer Agent and Registrar of the Common Stock is
ChaseMellon Shareholder Services, L.L.C. Its telephone number is 214-965-2235.
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COMPARISON OF STOCKHOLDER RIGHTS
COMPARISON OF OPTICARE TO SARATOGA
GENERAL
Saratoga is a Delaware corporation subject to the provisions of the
Delaware General Corporation Law (the "Delaware General Corporation Law") and
OptiCare is a Connecticut corporation subject to the provisions of the
Connecticut Business Corporation Act (the "Connecticut Business Corporation
Act"). Upon consummation of the OptiCare Merger, shareholders of OptiCare will
become shareholders of Saratoga and their rights as shareholders of Saratoga
will be governed by the Certificate of Incorporation of Saratoga (the "Saratoga
Certificate"), the Bylaws of Saratoga (the "Saratoga Bylaws"), the Delaware
General Corporation Law and Delaware law.
The following is a comparison of certain provisions of the Connecticut
Business Corporation Act, the Delaware General Corporation Law and the
respective certificates of incorporation and by-laws of OptiCare and Saratoga.
This summary does not purport to be complete and is qualified in its entirety
by reference to the Connecticut Business Corporation Act and the Delaware
General Corporation Law, which may change from time to time, and the
certificates of incorporation and bylaws, as amended, of Saratoga and OptiCare.
AUTHORIZED CAPITAL STOCK
Saratoga. The authorized capital stock of Saratoga consists of 50,000,000
shares of common stock (the "Saratoga Common Stock") and 5,000,000 shares of
preferred stock (the "Saratoga Preferred Stock"). As of the Record Date, there
were 3,465,292 shares of Saratoga Common Stock outstanding (before giving
effect to the proposed reverse split). If the reverse split becomes effective,
the number of shares of outstanding common stock (before issuance of common
stock in the mergers) will be 225,000, and the additional number of shares to
be issued in the mergers will be 8,750,000. In addition, the combined company
will reserve an aggregate of 705,680 shares of Saratoga Common Stock to be
issued under options on securities of OptiCare and Prime for which the combined
company will be responsible after the mergers and additional shares to be
issued under the Performance Stock Plan and the Employee Stock Purchase Plan.
No Saratoga Preferred Stock is outstanding or committed to be outstanding as a
consequence of the Mergers or otherwise.
OptiCare. The authorized capital stock of OptiCare consists of 1,200,000
shares of OptiCare Common Stock, 160,000 shares of Class A Convertible
Preferred Stock ("OptiCare Class A Preferred Stock"), and 640,000 shares of
Class B Convertible Preferred Stock ("OptiCare Class B Preferred Stock"),
(collectively, the "OptiCare Preferred Stock"). Each share of OptiCare
Preferred Stock is convertible by the holder into one share of OptiCare Common
Stock, subject to adjustment for anti-dilution events described in the
Certificate of Incorporation of OptiCare, as amended (the "OptiCare
Certificate"). As of the date of this Proxy Statement/Prospectus, 152,754
shares of OptiCare Class A Preferred Stock were issued and outstanding, 221,046
shares of OptiCare Class B Preferred Stock were issued and outstanding and
61,022 shares of OptiCare Class B Preferred Stock were reserved for issuance
upon the exercise of outstanding warrants. As of such date, no shares of
OptiCare Common Stock were issued or outstanding, and 45,497 shares of OptiCare
Common Stock were reserved for issuance upon the exercise of outstanding stock
options.
ISSUANCE OF CAPITAL STOCK
Saratoga. Under the Delaware General Corporation Law, Saratoga may issue
rights or options for the purchase of shares of capital stock of Saratoga. Such
rights or options may be issued to directors, officers or employees of Saratoga
or its subsidiaries and the issuance or plan pursuant to which they are issued
need not be approved by the holders of Saratoga Common Stock. However,
stockholder approval for stock-related compensation plans may also be sought in
certain instances in order to qualify such plans for favorable federal income
tax treatment under current laws and regulations.
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Under the terms of the Saratoga Certificate, the Saratoga Preferred Stock
may be issued from time to time in one or more series, and the Saratoga board
of Directors has authority to issue shares of preferred stock in such series,
and to fix from time to time before issuance the number of shares to be
included in any series as well as the designation, relative powers,
preferences, rights, qualifications, limitations and restrictions of all shares
of such series. The Saratoga board may also increase or decrease the number of
shares comprising such series (but not below the number of shares then
outstanding) from time to time. See "Description of the Saratoga Capital
Stock".
OptiCare. The OptiCare board of Directors (the "OptiCare board") has the
authority, subject to limitations set forth by law, to issue three classes of
shares: the OptiCare Class A Preferred Stock, the OptiCare Class B Preferred
Stock and the OptiCare Common Stock, and to issue rights or options for the
purchase of such shares. See "Authorized Capital Stock" above.
VOTING RIGHTS
Saratoga. According to the Saratoga Certificate, holders of Saratoga
Common Stock have the right to vote for the election of directors and for all
other purposes and each share of Saratoga Common Stock entitles the holder to
one vote, in person or by proxy, at any and all meetings of the stockholders of
the corporation on all propositions before such meetings. No holder of Saratoga
Common Stock has the right to cumulate such holder's votes for the election of
directors.
OptiCare. According to the OptiCare Certificate, the holder of each share
of OptiCare Common Stock issued and outstanding shall have one vote per share
and the holder of each share of OptiCare Preferred Stock shall be entitled to
the number of votes equal to the number of shares of OptiCare Common Stock into
which such holder's share of OptiCare Preferred Stock could be converted.
Neither the OptiCare Certificate nor the OptiCare Bylaws permit
stockholders to cumulate their votes in an election of directors.
DIVIDENDS AND OTHER DISTRIBUTIONS
Saratoga. Under the Delaware General Corporation Law, Saratoga may, unless
otherwise restricted by the Saratoga Certificate, pay dividends in cash,
property or shares of capital stock out of surplus or, if no surplus exists,
out of net profits for the fiscal year in which declared or out of net profits
for the preceding fiscal year (provided that such payment will not reduce
capital below the amount of capital represented by classes of stock having
preference upon distribution of assets). The Saratoga Certificate does not
currently restrict the payment of dividends, and holders of Saratoga Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors in its absolute
discretion, subject to the payment of or dividends on Saratoga Preferred Stock.
The Saratoga Bylaws authorizes the Saratoga board to declare dividends on the
capital stock at any regular or special meeting. Before payment of such
dividend, the Saratoga board must set aside a reserve the Saratoga board deems
proper for meet contingencies related to the payment of such dividends. There
is no Saratoga Preferred Stock at the present time.
Under the Delaware General Corporation Law, a corporation may repurchase
or redeem its shares only out of surplus and only if such purchase does not
impair capital. However, a corporation may redeem preferred stock out of
capital if such shares will be retired upon redemption and the stated capital
of the corporation is thereupon reduced in accordance with Delaware law.
OptiCare. Under the Connecticut Business Corporation Act, a corporation
may make distributions, including dividends, to its shareholders subject to
restriction by its certificate of incorporation unless, after giving effect to
the dividend or distribution, either the corporation would not be able to pay
its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of its total liabilities
plus, unless its certificate of incorporation permits otherwise, the amount
that would be needed, if the corporation were to be dissolved at that time, to
satisfy the preferential rights of shareholders whose rights are superior to
those shareholders receiving the dividend or distribution.
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The OptiCare Certificate permits dividends and distributions to be paid on
any share of OptiCare Common Stock only after dividends are first paid to all
holders of OptiCare Preferred Stock in a per share amount equal to or greater
than the aggregate amount of such dividends for all shares of OptiCare Common
Stock into which the OptiCare Preferred Stock could be converted. No dividend
may be paid on shares of OptiCare Preferred Stock unless an equivalent
dividend, based on the number of shares of OptiCare Common Stock the OptiCare
Preferred Stock could be converted into, is paid on shares for all other
classes of OptiCare Preferred Stock.
DIRECTOR VACANCIES AND REMOVAL OF DIRECTORS
Saratoga. Pursuant to the Delaware General Corporation Law, any director
or the entire Saratoga board may be removed with or without cause by the
affirmative vote of a majority of the outstanding shares of Saratoga capital
stock entitled to vote in the election of directors. Under the Saratoga Bylaws,
any director may be removed, with or without cause, by the holders of a
majority of shares then entitled to vote at an election of directors; provided
that, if the Saratoga board is elected by class or classes or series thereof,
then the stockholders may remove the director only for cause. The Saratoga
Bylaws provide that any vacancy occurring on the Saratoga board may be filled
by the vote of a majority of directors remaining in office at the time of the
vacancy, even if less than a quorum. The successors may serve the remaining
terms of the replaced directors.
OptiCare. Under the Connecticut Business Corporation Act, a director may
be removed by shareholders with or without cause unless the certificate of
incorporation provides that directors may be removed only for cause. According
to the Connecticut Business Corporation Act, a director may be removed by
shareholders only at a meeting called for the purpose of removing such
director, and the meeting notice must state that the purpose or one of the
purposes of the meeting is removal of the director. The OptiCare Bylaws provide
that a director may be removed with or without cause by action of the
shareholders. The OptiCare Certificate contains no provision on the removal of
directors.
Under the Connecticut Business Corporation Act, unless a corporation's
certificate of incorporation provides otherwise, any vacancy in a board of
directors may be filled, (i) by the shareholders, (ii) by such board of
directors, or (iii) if the directors remaining in office constitute fewer than
a quorum of such board, by the affirmative vote of a majority of all the
directors remaining in office. The OptiCare Bylaws provide for vacancies to be
filled in the manner consistent with the Connecticut Business Corporation Act.
DUTIES OF DIRECTORS
Saratoga. The Delaware General Corporation Law does not contain a specific
provision elaborating on the duties of a board of directors with respect to the
best interests of the corporation. The scope of the fiduciary duties of the
Board of Directors of Saratoga is thus determined by the courts of Delaware. In
connection with business combination transactions, Delaware courts have
permitted directors to consider various constituencies provided that there be
some rationally related benefit to the shareholders.
OptiCare. The Connecticut Business Corporation Act requires that a
director of OptiCare discharge his duties as a director in good faith, with the
care an ordinarily prudent person in a like position would exercise under
similar circumstances, and in a manner such director reasonably believes to be
in the best interests of the corporation. In connection with the directors'
consideration of certain business combination transactions, the Connecticut
Business Corporation Act requires that a director consider, in determining what
such director reasonably believes to be in the best interests of the
corporation, the following:
(1) the long-term as well as the short-term interests of the corporation,
(2) the interests of the shareholders, long-term as well as short-term,
including the possibility that those interest may be best served by the
continued independence of the corporation,
(3) the interest of the corporation's employees, customers, creditors and
suppliers, and
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(4) community and societal considerations including those of any community
in which any office or other facility of the corporation is located.
A director may also, in his/her discretion, consider any other factors he
or she reasonably considers appropriate in determining what he reasonably
believes to be in the best interest of the corporation with respect to a
business combination transaction. Those requirements for business combinations
do not now apply to the directors of OptiCare because it does not file periodic
reports with the Securities and Exchange Commission under the Securities
Exchange Act. There is no provision in the OptiCare certificate of
incorporation or bylaws concerning the duties of directors.
MEETINGS OF STOCKHOLDERS
Saratoga. Pursuant to the Saratoga Bylaws, a special meeting of the
stockholders may be called by the Chairman of the Board, the President, by the
Saratoga board, by written order of a majority of the Saratoga board or at the
written request of stockholders owning a majority of Saratoga Common Stock
issued and outstanding and entitled to vote. Special meetings of the holders of
outstanding Saratoga Preferred Stock may be called in the manner and for the
purposes provided in the Saratoga board resolutions providing for issue of the
preferred stock. Under the Saratoga Bylaws, the holders of stock having a
majority of voting power entitled to vote at any stockholders' meeting shall
constitute a quorum at any meeting of stockholders for the transaction of
business.
OptiCare. Under the Connecticut Business Corporation Act, a corporation is
required to hold a special meeting of shareholders if the board of directors
calls such a meeting, or if holders of at least 10% of all votes entitled to be
cast on any issue proposed to be considered at the special meeting make one or
more written demands to the corporation's secretary describing the purpose for
the proposed special meeting. The OptiCare Bylaws also authorize the President
to call a special meeting.
Under the Connecticut Business Corporation Act, unless the certificate of
incorporation or the Connecticut Business Corporation Act provides otherwise, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. The Connecticut Business Corporation Act provides that
unless the Connecticut Business Corporation Act or the certificate of
incorporation requires a greater number of affirmative votes, if a quorum
exists, action on a matter, other than the election of directors, is approved
if the votes cast favoring the action exceed the votes cast opposing the
action. Under the OptiCare Bylaws, except as otherwise provided by applicable
law or by the OptiCare Certificate, a majority of the votes entitled to be cast
on a matter constitutes a quorum for action on the matter.
STOCKHOLDER ACTION WITHOUT A MEETING
Saratoga. Under the Saratoga Bylaws, and according to the Delaware General
Corporation Law, any action which may be taken by the Saratoga stockholders at
any annual or special meeting of stockholders may be taken without a meeting
and without prior notice if a consent in writing, setting forth the action to
be so taken, is signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote were present and
voted.
OptiCare. Under Section 33-698 of the Connecticut Business Corporation
Act, any action which may be taken by shareholders at any annual or special
meeting may be taken (1) without a meeting by unanimous written consent of all
the persons who would be entitled to vote upon such action at a meeting (or by
their duly authorized attorneys), or (2) if the corporation's certificate of
incorporation so provides, by written consent of a majority of the persons who
would be entitled to vote upon such action at a meeting. The Connecticut
Business Corporation Act prohibits election of directors by action of
shareholders without a meeting except by unanimous written consent, or pursuant
to a plan of merger. Under the OptiCare Certificate, any action which may be
taken by shareholders at a meeting, except for the election of directors, may
be taken by written consent of the holders of the number of shares that would
be required to approve the action at a meeting where all shareholders entitled
to vote on the action were present.
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AMENDMENT OF CORPORATE CHARTER AND BYLAWS
Saratoga. Under the Delaware General Corporation Law, an amendment to the
certificate of incorporation generally requires the recommendation of the board
of directors, the approval of a majority of all shares entitled to vote
thereon, voting together as a single class, and the majority of the outstanding
stock of each class entitled to vote thereon as a class. Under the Saratoga
Certificate, the corporation may adopt, repeal, rescind, alter or amend the
Saratoga Certificate in accordance with the Delaware General Corporation Law.
Under the Delaware General Corporation Law, a corporation's board of
directors may amend the bylaws if its certificate of incorporation contains a
provision entitling the directors to amend the bylaws. Even if the certificate
of incorporation contains such a provision, the shareholders also have the
power to amend the bylaws. The Saratoga Certificate authorizes the Saratoga
board to adopt, repeal, rescind, alter or amend in any respect the Saratoga
Bylaws.
OptiCare. Under the Connecticut Business Corporation Act, a corporation's
certificate of incorporation may be amended in certain limited respects by the
board of directors of such corporation without shareholder action. A
corporation's certificate of incorporation may also be amended in any respect
by recommendation of the board of directors (unless the board determines that
because of conflict of interest or other special circumstances it should make
no recommendation and communicates the basis for its determination to the
shareholders with the amendment) and, unless the certificate of incorporation
or directors require a greater vote, by approval of (1) a majority of the votes
entitled to be cast on the amendment by each voting group, if any, with respect
to which the amendment would create dissenters' rights, and (2) a majority of
the votes cast by every other voting group entitled to vote on the amendment.
The OptiCare Certificate contains no provision on amendment of the certificate
of incorporation.
Under the Connecticut Business Corporation Act, a corporation's board of
directors may amend or repeal the bylaws unless the corporation's certificate
of incorporation or the Connecticut Business Corporation Act reserves this
power exclusively to the shareholders in whole or in part or unless in amending
or repealing a particular bylaw the shareholders have expressly provided that
the board of directors may not amend or repeal such bylaw. The OptiCare Bylaws
provide that except as otherwise provided by applicable law, or by the
Stockholders Agreement (to which OptiCare and certain of its stockholders are
parties) while it remains in effect, the Board shall have power, equal in all
respects to that of the shareholders, to adopt, amend or repeal the Bylaws of
OptiCare.
SALE OF ASSETS, MERGER AND CONSOLIDATION
Saratoga. Under the Delaware General Corporation Law, a sale, lease or
exchange of all or substantially all of the property or assets of Saratoga
requires approval first by the Saratoga Board and then by a majority of the
outstanding stock entitled to vote thereon.
A sale of less than substantially all of the assets of Saratoga, a merger
of Saratoga with a company in which it owns 90% or more of the outstanding
capital stock or reclassification of Saratoga's securities not involving an
amendment to the Saratoga Certificate would not require stockholder approval.
Subject to the provisions of Section 203 of the Delaware General
Corporation Law described below under "State Antitakeover Statutes," no vote of
the stockholders of Saratoga would be required for mergers meeting the
following requirements:
(a) Saratoga is the surviving corporation in a merger,
(b) the merger agreement does not amend the Saratoga certificate of
incorporation,
(c) each share of stock of Saratoga outstanding immediately before the
merger will be unchanged after the merger, and
(d) the number of shares of Saratoga common stock to be issued in the
merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) will not exceed 20% of the
shares of Saratoga common stock outstanding immediately before the
merger.
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The Saratoga Certificate authorizes the Saratoga board to sell, lease or
otherwise dispose of any part or parts of the properties of Saratoga and to
cease to conduct the business connected therewith to the extent permitted by
the Delaware General Corporation Law.
OptiCare. Under the Connecticut Business Corporation Act, for a plan of
merger or exchange to be approved, the board of directors must adopt the plan
of merger or exchange and recommend it to the shareholders for approval, unless
the board determines that, due to a conflict of interest or other special
circumstances, it should make no recommendation and communicates the basis for
its determination to the shareholders. According to Connecticut Business
Corporation Act Section 33-817(j), for corporations incorporated before January
1, 1997, including OptiCare, a plan of merger must be approved by each voting
group entitled to vote separately on the plan by at least two-thirds of the
voting power of such voting group, unless the certificate of incorporation
provides otherwise. The OptiCare Certificate makes inapplicable the two-thirds
voting requirements of Connecticut Business Corporation Act Section 33-817(j)
pertaining to a plan of merger or share exchange. Action by shareholders of the
surviving corporation on a plan of merger is not required if:
(1) the certificate of incorporation of the surviving corporation will not
differ, except for amendments enumerated in Section 33-796 of the Connecticut
Business Corporation Act, from its certificate of incorporation before the
merger,
(2) each shareholder of the surviving corporation whose shares were
outstanding immediately before the merger will hold the same number of shares,
with identical rights, immediately after the merger,
(3) the number of voting shares outstanding immediately after the merger,
plus the number of voting shares issuable as a result of the merger, will not
exceed by more than 20% the total number of voting shares of the surviving
corporation outstanding before the merger, and
(4) the number of participating shares (as defined in the Connecticut
Business Corporation Act) outstanding immediately after the merger, plus the
number of participating shares issuable as a result of the merger, will not
exceed by more than 20% the total number of participating shares outstanding
immediately before the merger.
APPRAISAL RIGHTS
Saratoga. The Delaware General Corporation Law provides appraisal rights
for stockholders who dissent in a merger or consolidation, subject to certain
circumstances. Where the right of appraisal is available to a stockholder
objecting to such a transaction, appraisal is his or her exclusive remedy as a
holder of such shares against such transactions.
OptiCare. Under the Connecticut Business Corporation Act, a shareholder is
entitled to dissent from and receive the fair value of shares owned in the
event of a plan of merger or share exchange to which the corporation is a party
as the corporation whose shares will be acquired, if shareholder approval is
required for the merger or the share exchange and the shareholder is entitled
to vote on the transaction. See "Description of the Mergers--Stockholders'
Appraisal Rights--OptiCare." The Connecticut Business Corporation Act also
provides for appraisal rights:
(1) in the case of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business if the shareholder is entitled to vote thereon but not including a
sale pursuant to a court order or a sale for cash all of the net proceeds of
which will be distributed to shareholders within one year of the sale,
(2) in the case of amendments to the certificate of incorporation that
materially and adversely affect rights in respect of the dissenter's shares,
and
(3) any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the board of
directors provides that shareholders are entitled to dissent and obtain payment
for their shares. Neither the OptiCare Certificate nor the OptiCare Bylaws
contain provisions concerning appraisal and dissenters' rights.
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LIQUIDATION PREFERENCE
Saratoga. Saratoga currently has only one class of capital stock
outstanding, the Saratoga Common Stock, which has no liquidation preference
upon a liquidation, dissolution or winding up of Saratoga.
OptiCare. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of OptiCare, the holders of OptiCare Class A
Preferred Stock are entitled to receive, prior to distribution of any assets to
holders of any other class or series of stock, $93.68 per share (adjusted for
any stock dividends, combinations or splits with respect to such shares) plus
an amount equal to all declared but unpaid dividends on such shares. If the
amount of assets of OptiCare available for such distribution is less than the
full amount to which the holders of OptiCare Class A Preferred Stock are
entitled, then the entire amount of available assets shall be distributed among
the holders of OptiCare Class A Preferred Stock in proportion to the shares
held by them.
If any assets remain after such distribution to OptiCare Class A Preferred
Stock holders, the holders of OptiCare Class B Preferred Stock shall receive,
prior to distribution of any assets to holders of any other class or series of
stock, $93.68 per share (adjusted for any stock dividends, combinations or
splits with respect to such shares) plus an amount equal to all declared but
unpaid dividends on such shares. If the amount of assets remaining for such
distribution is less than the full amount to which the holders of OptiCare
Class B Preferred Stock are entitled, then the entire amount of remaining
assets shall be distributed among the holders of OptiCare Class B Preferred
Stock in proportion to the shares held by them.
The entire remaining assets, if any, available for distribution after
distribution to holders of OptiCare Class A Preferred Stock and OptiCare Class
B Preferred Stock shall be distributed among the holders of OptiCare Common
Stock and among the holders of OptiCare Preferred Stock in proportion to the
shares of common stock held by them and/or the shares of common stock which
they have a right to acquire upon conversion of their OptiCare Preferred Stock.
CONFLICT-OF-INTEREST TRANSACTIONS
Saratoga. The Delaware General Corporation Law permits transactions
involving a Delaware corporation and an interested director or officer of that
corporation so long as
(a) the material facts are disclosed and a majority of disinterested
directors consents,
(b) the material facts are disclosed and a majority of shares entitled
to vote thereon consents, or
(c) the transaction is fair to the corporation at the time it is
authorized by the board of directors, a committee of the board, or
the shareholders.
The Saratoga certificate of incorporation and by-laws contain no provision
on conflict-of-interest transactions.
OptiCare. Similar to the Delaware General Corporation Law, the Connecticut
Business Corporation Act permits transactions involving a Connecticut
corporation and an interested director of that corporation so long as:
(1) the transaction is approved by an affirmative vote of a majority, but
no fewer than two, of those qualified directors (as defined in the Connecticut
Business Corporation Act) on the board of directors or on a duly empowered
committee thereof who voted on the transaction after the existence and nature
of the director's conflicting interest and all facts known to him respecting
the subject matter of the conflicting interest transaction that an ordinarily
prudent person would reasonably believe to be material to a judgment about
whether or not to proceed with the transaction are known or disclosed to them,
(2) a majority of the votes entitled to be cast by the holders of all
qualified shares (as defined in the Connecticut Business Corporation Act) were
cast in favor of the transaction after the existence and nature of the
director's conflicting interest and all facts known to the interested director
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respecting the subject matter of the conflicting interest transaction that an
ordinarily prudent person would reasonably believe to be material to a judgment
about whether or not to proceed with the transaction are known or disclosed to
the holders of such shares, or
(3) the transaction, judged according to the circumstances at the time of
commitment, is established to have been fair to the corporation.
Unlike the Delaware General Corporation Law, the Connecticut Business
Corporation Act contains no provisions explicitly treating conflict-of-interest
transactions to be undertaken by officers of a corporation.
LIMITATION ON DIRECTORS' LIABILITY
Saratoga. Section 102 of the Delaware General Corporation Law allows a
corporation to limit or eliminate the personal liability of directors to the
corporation and its shareholders for monetary damages for breach of fiduciary
duty as a director. However, this provision excludes any limitation on
liability:
(a) for any breach of the director's duty of loyalty to the corporation
or its shareholders,
(b) for acts or omissions not in good faith or which involve intentional
misconductor a knowing violation of law,
(c) for intentional or negligent payment ofunlawful dividends or stock
purchase or redemption or
(d) for any transactionfrom which the director derived an improper
personal benefit.
The Saratoga certificate of incorporation provides for the limitations on
director's liability to the fullest extent permitted by such Section 102.
OptiCare. Section 33-636 of the Connecticut Business Corporation Act
allows a corporation to limit the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of duty as a
director to an amount that is not less than the compensation received by the
director for serving the corporation during the year of the violation if such
breach did not:
(a) involve a knowing and culpable violation of law by the director,
(b) enable the director or an associate to receive an improper personal
economic gain,
(c) show a lack of good faith and a conscious disregard for the duty of
the director to the corporation under circumstances in which the director was
aware that his conduct or omission created an unjustifiable risk of serious
injury to the corporation,
(d) constitute a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duty to the corporation, or
(e) create liability for unlawful distributions.
The OptiCare certificate of incorporation provides for the limitation of
directors' liability permitted by Section 33-636.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Saratoga. Section 145 of the Delaware General Corporation Law provides
that a corporation may indemnify its officers and directors who were or are a
party to any action, suit or proceeding by reason of the fact that he or she
was a director, officer, or employee of the corporation by, among other things,
a majority vote of a quorum consisting of directors who were not parties to
such action, suit, or proceeding, provided that such officers and directors
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation.
The Saratoga Bylaws authorize indemnification of directors, officers,
employees and agents of Saratoga in a manner consistent with Section 145 of the
Delaware General Corporation Law. The
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Saratoga Bylaws prohibit indemnification of persons adjudged to be liable to
Saratoga unless a court determines otherwise. The Saratoga Bylaws also
authorize the corporation to purchase and maintain insurance on behalf of any
director, officer, employee or agent of Saratoga for liability incurred by such
individuals in their capacity as director, officer, employee or agent of
Saratoga.
As more fully discussed in "Special Meeting--Proposal 4--indemnification
Proposal," the Saratoga stockholders will be asked to approve an amendment of
the Saratoga certificate of incorporation which will require Saratoga to
indemnify directors, officers and other agents of the combined company to the
fullest extent allowed under applicable law.
OptiCare. Under the Connecticut Business Corporation Act, unless the
certificate of incorporation provides otherwise, a corporation formed prior to
January 1, 1997 shall indemnify its officers, directors, employees or agents
against liability incurred by them in connection with proceedings, if they
acted in good faith and, in the case of conduct in their official capacity, in
a manner they reasonably believed to be in the best interests of the
corporation and, in all other cases, that their conduct was at least not
opposed to the best interest of the corporation, and with respect to criminal
proceedings, had no reasonable cause to believe that their conduct was
unlawful. A corporation may advance expenses to its officers, directors,
employees or agents prior to final adjudication, as long as they deliver to the
corporation a written affirmation of their good faith belief that they have
satisfied the required standard of conduct and undertake to repay the amounts
advanced if it is ultimately determined that they were not entitled to be
indemnified. There is no contrary provision in the OptiCare Certificate
concerning indemnification of directors and officers.
STATE ANTITAKEOVER STATUTES
Saratoga. Section 203 of the Delaware General Corpoation Law prohibits a
"business combination" (as defined in Section 203, generally including mergers,
sales and leases of assets, issuances of securities and similar transactions)
by a corporation or a subsidiary with an "interested stockholder" (as defined
in Section 203, generally the beneficial owner of 15% or more of a
corporation's voting stock) within 3 years after the person (or entity) becomes
an interested stockholder, unless:
(a) prior to the person's becoming an interested stockholder, the
business combination or the transaction by which the person became an
interested stockholder is approved by the board of directors of the
target,
(b) at the close of the transaction when the interested stockholder
became an interested stockholder, the he/she held at least 85% of the
voting stock of the corporation, or
(c) after the person becomes an interested shareholder, the business
combination is approved by the Saratoga board and by the holders of
at least two-thirds of the outstanding voting stock of Saratoga,
excluding shares held by the interested stockholder.
OptiCare. The Connecticut Business Corporation Act provides that any
business combination with an "interested shareholder" (generally defined as the
beneficial owner of 10% or more of the voting power of the outstanding shares
of voting stock of a corporation) or its affiliates or associates, must, with
certain exceptions, be approved by the affirmative vote of at least the holders
of 80% of the voting power of the outstanding shares of voting stock of the
corporation and the holders of two-thirds of the voting power of the
outstanding shares of voting stock of the corporation other than voting stock
held by the interested shareholders who is, or whose affiliates or associate
is, a party to the business combination,or held by an affiliate or associate of
the interested shareholder. This supermajority voting provision will not be
applicable if either certain fair price criteria set forth in Section 33-842(b)
or the CBCA are met or, unless the certificate of incorporation otherwise
provides, the board of directors approves the business combination prior to the
time the interested shareholder became such. A business combination is
generally defined in Section 33-840(4) of the CBCA to include
o mergers, consolidations or share exchanges with,
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o sales, exchanges, leases, mortgage pledges, transfers or other
dispositions, other than in the usual and regular course of business,
of any assets of the corporation or any of its subsidiaries having an
aggregate book value of 10% or more of the total market value of the
outstanding shares of the corporation or of its net worth to,
o issuance or transfer by the corporation or any of its subsidiaries of
any equity securities of the corporation or any of its subsidiaries
which have an aggregate market value of 5% or more of the total market
value of the outstanding shares of the corporation to,
o adoption of a resolution calling for the liquidation or dissolution of
the corporation proposed by or on behalf of, or
o reclassification of securities having the effect of increasing the
proportionate amount of securities owned by
an interested shareholder.
The Connecticut Business Corporation Act has a second business combination
statute set forth in Sections 33-843 to 33-845. Pursuant to this statute a
resident domestic corporation (as defined in Section 33-843(11) of the
Connecticut Business Corporation Act) may not engage in a business combination
(which is defined similarly to the definition contained in Section 33-840(4) of
the Connecticut Business Corporation Act) with an interested shareholder of
such corporation for a period of 5 years following the date that the interested
shareholder became such unless such business combination or the purchase of
stock made by such interested person on the date that the interested
shareholder became such is approved by the board of directors of such
corporation and by a majority of the nonemployee directors, of which there must
be at least two, prior to such interested shareholder's stock acquisition date.
Neither of those two Connecticut business combination statutes now applies
to OptiCare because it does not file reports with the Securities and Exchange
Commission under the Securities Exchange Act.
COMPARISON OF PRIME TO SARATOGA
Saratoga and Prime are both Delaware corporations subject to the
provisions of Delaware law. Prime stockholders, whose rights are governed by
Prime's charter and bylaws and Delaware law, will, upon the completion of the
merger, become stockholders of Saratoga, and their rights will then be governed
by Saratoga's charter and bylaws and Delaware law. The following is a summary
of the material differences in the rights of the stockholders of Saratoga and
Prime, and is qualified in its entirety by reference to Saratoga's charter and
bylaws, Prime's charter and bylaws and Delaware law. Certain topics discussed
below are also subject to federal law and the regulations promulgated
thereunder. Copies of Saratoga's charter and bylaws, Prime's charter and bylaws
are incorporated by reference in this document, and will be sent to
stockholders upon request.
VOTING RIGHTS
Delaware law. Delaware law provides that the vote or written consent of
the holder of majority of the shares of the then outstanding common stock is
required to be authorize a plan of merger or consolidation, unless the charter
or bylaws of a corporation otherwise provide. On substantially all other
matters, the stockholders act by simple majority, unless the charter or bylaws
otherwise provide.
Saratoga. Saratoga has two classes of authorized capital stock, preferred
and common. At the present time, and upon closing of the mergers, there will be
only one class of issued and outstanding capital stock, i.e., the Saratoga
Common Stock, which has unrestricted voting rights. The board of directors is
authorized to issue so-called "blank check" preferred stock in its absolute
discretion, on such terms as the board may determine, and such preferred stock
may carry voting rights as determined by the board of directors. See
"Description of the Saratoga Capital Stock" and "Risk Factors--Delaware law and
Saratoga's board's ability to issue preferred stock could deter takeover bids
even if those bids are in the stockholders' best interests."
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Prime. Prime currently has two classes of issued and outstanding capital
stock, preferred and common. The preferred stock has the right to elect a
member of the Prime board of directors. A condition of the merger agreement
requires the holder of the outstanding preferred stock to exchange such
preferred stock for common stock and notes of Saratoga. See "Related
Agreements--Treatment of Prime Class A Preferred Stock."
CLASSIFICATION OF DIRECTORS
Delaware law permits the charter or bylaws of a corporation to provide for
classification of the directors, with the effect that a majority of the
directors will not stand for election at any single annual meeting of
stockholders.
Saratoga. The Saratoga charter and bylaws do not presently provide for a
classified board of directors. Presently, or following the closing of the
mergers, the board of directors could adopt an amendment of the bylaws to
provide for classification of the board of directors.
Prime currently has a classified board of directors.
NUMBER OF DIRECTORS
Saratoga. Saratoga's bylaws provide that the number of directors which
shall constitute the Saratoga board of directors shall be determined by a vote
of the Saratoga board of directors. The Saratoga board of directors has fixed
the current number of directors at two.
Prime. Prime's bylaws provide that the number of directors which shall
constitute the Prime board of directors shall be determined by a vote of the
Prime board of directors, but not less than 3 nor more than 17. The Prime board
of directors has fixed the current number of directors at 9.
REMOVAL OF DIRECTORS
Delaware law. Delaware law provides that the stockholders of a corporation
may remove directors with or without cause, with certain exceptions, unless the
charter provides that directors may be removed only for cause. The vote for
removal shall be by a majority of shares entitled to vote at an election of
directors, except that the charter may require a higher vote for removal
without cause.
Saratoga. Saratoga's charter contains no provision affecting the rights of
stockholders to remove directors as permitted by Delaware law.
Prime. Prime's bylaws provide that so long as the board of directors is
classified, a director may be removed only for cause.
FILLING BOARD VACANCIES
Saratoga. Saratoga's bylaws provide that vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director.
Prime. Prime's bylaws provide that vacancies on the board may be filled by
a two-thirds vote of the stockholders or a majority vote of the directors then
in office, even if less than a quorum.
APPRAISAL/DISSENTERS' RIGHTS
Delaware law. Under Delaware law, stockholders of a Delaware corporation
have appraisal rights in a merger or consolidation, except for (i) certain
mergers not requiring any vote by stockholders if the corporation is the
surviving corporation in the merger and (ii) corporations whose shares are
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation systems by the National Association
of Securities Dealers (the "NASD") or held of record by more than 2,000
persons. However, even with respect to shares so listed or so held, appraisal
rights exist if, pursuant to a plan of merger, the stockholder is to receive in
exchange
115
<PAGE>
for his shares anything other than stock of the surviving corporation, stock of
any corporation listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the NASD
or held of record by more than 2,000 holders or cash in lieu of fractional
shares.
Saratoga. Holders of Saratoga common stock are not entitled to appraisal
rights in connection with the merger, because Saratoga is not a direct party to
the merger--Saratoga's wholly owned subsidiary is the actual party to the
merger.
Prime. Holders of Prime common stock are entitled to appraisal rights in
connection with the merger. Pursuant to Delaware law, any Prime stockholder who
does not wish to accept the merger consideration to be paid pursuant to the
merger agreement may dissent from the merger and elect to have the fair value
of his shares of Prime common stock judicially determined and paid in cash,
provided that he complies with the provisions of Delaware law. See "Description
of the Mergers--Stockholders' Appraisal Rights--Prime."
AMENDMENT OF CHARTER
Delaware law. Under Delaware law, holders of the outstanding shares of a
class of stock are entitled to vote as a class on any amendment of the
corporation's charter if the amendment would increase or decrease the number of
authorized shares of the class, increase or decrease its par value, or
adversely alter or affect the powers, preferences or rights of the class.
Delaware law further provides, however, that a corporation, in its original
charter, or in any amendment which creates any class of stock or which is
adopted prior to the issuance of any shares of such class, or in any amendment
approved by the affected class, may provide that the number of authorized
shares of any such class may be increased or decreased, but not below the
number of shares of the class then outstanding, by vote of a simple majority of
all the stock of the corporation entitled to vote.
Saratoga. Saratoga's charter contains no provision altering the provisions
of Delaware law with respect to the amendment of the Saratoga charter.
Prime. Prime's charter requires a supermajority vote of two thirds of all
outstanding voting stock to authorize any amendment of Prime's certificate of
incorporation.
AMENDMENT OF BYLAWS
Saratoga. Under Delaware law and Saratoga's bylaws, Saratoga laws may be
amended or repealed or new by-laws may be adopted, by a majority of the holders
of the outstanding capital stock of Saratoga entitled to vote thereon or by a
majority of Saratoga board of directors then in office; provided, however that
notice of such alteration, amendment, repeal or adoption of new bylaws be
contained in the notice of such meeting of stockholder or directors as the case
may be.
Prime. Under Delaware law and Prime's bylaws, the Prime bylaws may be
amended or repealed, or new by-laws adopted, by a two-thirds vote of the Prime
stockholders or majority vote of the Prime board of directors, except that the
Prime board of directors may not amend, repeal or adopt new bylaws regarding an
impending election of directors without notice to the Prime stockholders in the
notice of the next annual meeting for the election of directors.
SPECIAL MEETINGS OF STOCKHOLDERS
Delaware law. Under Delaware law, special meetings of stockholders may be
called by the board of directors or by such person or persons as may be
authorized by a corporation's charter or bylaws.
Saratoga. Saratoga's bylaws provide that special meetings may be called by
any of the chairman, the president, any vice president, the secretary or any
assistant secretary and shall be called by any such officer at the request in
writing of a majority of the Saratoga board of directors or at the request in
writing of stockholders owning a majority of the capital stock of Saratoga
entitled to vote at such meeting.
116
<PAGE>
Prime. Prime's bylaws provide that special meetings may be called by the
directors, chief executive officer or the president, and shall be called by the
chief executive officer, the president or secretary upon written application of
a majority of the directors or by two-thirds of the holders of all outstanding
stock.
ACTION BY STOCKHOLDERS BY WRITTEN CONSENT IN LIEU OF A MEETING
Delaware law. Delaware law permits any action by stockholders to be taken
by majority written consent in lieu of a meeting.
Saratoga. Saratoga's bylaws do not narrow the scope of the authority of
the stockholders to take action by written consent.
Prime. Prime's bylaws provide that any action that may be taken by vote
may be taken without a meeting on written consent, signed by the holders of at
least two-thirds of all the outstanding shares entitled to vote thereon.
Except as discussed above, there are no material differences in the rights
of the stockholders of Saratoga and Prime.
INDEPENDENT AUDITORS
Saratoga has been advised that representatives of Ernst & Young LLP,
independent auditors for Saratoga for 1998 and Prime for 1998 and 1997, and
Deloitte & Touche LLP, independent auditors of OptiCare for 1998 and 1997, will
attend the Special Meeting, will have an opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for Saratoga by Kane Kessler, P.C., 1350
Avenue of the Americas, New York, New York 10019.
EXPERTS
The consolidated financial statements of Saratoga Resources, Inc. and
Subsidiaries at December 31, 1998, and for the year then ended, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, and at December 31, 1997, and for the year then
ended, by Hein + Associates LLP, independent auditors, as set forth in their
respective reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given on the authority of such firms as experts in
accounting and auditing.
The combined financial statements of OptiCare Eye Health Centers, Inc. and
Affiliate as of December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, included in this Proxy Statement/Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of PrimeVision Health, Inc. at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this Proxy Statement/Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which contains an explanatory
paragraph describing conditions that raise substantial doubt about the
Company's ability to continue as a going concern as described in Note 2 to the
consolidated financial statements) appearing elsewhere herein, and are included
in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
117
<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for presentation to the
Year 2000 Annual Meeting of Stockholders must submit the proposal to Saratoga
at its present corporate offices, 301 Congress Avenue--Suite 1550, Austin,
Texas 78701, Attention: Mr. Thomas F. Cooke, or to Saratoga c/o OptiCare Health
Systems, Inc. 87 Grandview Avenue, Waterbury, Connecticut 06708, Attention:
Dean J. Yimoyines, M.D., not later than for inclusion, if appropriate, in
the proxy statement and form of proxy to be distributed by management in
connection with the Year 2000 Annual Meeting.
Stockholders are advised that management will be permitted to exercise
discretionary voting authority under proxies it solicits and obtains for the
2000 annual meeting of stockholders with respect to any proposal presented by a
stockholder at such meeting, without any discussion of the proposal in the
company's proxy statement for such meeting, unless the company receives notice
of such proposal at its principal office in Waterbury, Connecticut, not later
than , 2000.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OPTICARE HEALTH SYSTEMS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Introduction ............................................................................. F-3
Pro Forma Combined Balance Sheet as of March 31, 1999 .................................... F-4
Pro Forma Combined Statement of Operations for the quarter ended March 31, 1999 .......... F-6
Pro Forma Combined Statement of Operations for the year ended December 31, 1998 .......... F-7
Notes to Pro Forma Combined Financial Statements ......................................... F-8
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
Interim Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ................... F-10
Consolidated Statements of Operations for the quarters ended March 31, 1999 and 1998 ..... F-11
Consolidated Statements of Cash Flows for the quarters ended March 31, 1999 and 1998 ..... F-12
Notes to Consolidated Financial Statements ............................................... F-13
Annual Financial Statements
Reports of Independent Auditors .......................................................... F-15
Consolidated Balance Sheets as of December 31, 1998 and 1997 ............................. F-17
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 ..... F-18
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998 and 1997 .............................................................. F-19
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 ..... F-20
Notes to Consolidated Financial Statements ............................................... F-21
PRIMEVISION HEALTH, INC.
Interim Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ................... F-26
Consolidated Statements of Operations for the quarters ended March 31, 1999 and 1998 ..... F-27
Consolidated Statements of Cash Flows for the quarters ended March 31, 1999 and 1998 ..... F-28
Notes to Consolidated Financial Statements ............................................... F-29
Annual Financial Statements
Report of Independent Auditors ........................................................... F-30
Consolidated Balance Sheets as of December 31, 1998 and 1997 ............................. F-31
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and
1996 .................................................................................... F-32
Consolidated Statements of Shareholders' (Deficit) Equity for the years ended December
31, 1998, 1997 and 1996 ................................................................. F-33
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996 .................................................................................... F-34
Notes to Consolidated Financial Statements ............................................... F-35
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATES
Interim Financial Statements
Combined Balance Sheets as of March 31, 1999 and December 31, 1998 ....................... F-49
Combined Statements of Operations for the quarters ended March 31, 1999 and 1998 ......... F-50
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Combined Statements of Cash Flows for the quarters ended March 31, 1999 and 1998 . F-51
Notes to Combined Financial Statements ........................................... F-52
Annual Financial Statements
Report of Independent Auditors ................................................... F-53
Combined Balance Sheets as of December 31, 1998 and 1997 ......................... F-54
Combined Statements of Operations for the years ended December 31, 1998, 1997 and
1996 ............................................................................ F-55
Combined Statements of Shareholders' Equity for the years ended December 31, 1998,
1997 and 1996 ................................................................... F-56
Combined Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996 ............................................................................ F-57
Notes to Combined Financial Statements ........................................... F-58
</TABLE>
F-2
<PAGE>
OPTICARE HEALTH SYSTEMS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet as of March 31,
1999 and the pro forma combined statement of operations for the quarter ended
March 31, 1999 and for the year ended December 31, 1998 give effect to the
mergers between Saratoga, Prime and OptiCare and related transactions upon
which the mergers are conditioned including: (i) substantial completion of the
disposal of Prime's ophthalmology segment, which is already a discontinued
operation in Prime's historical financial statements; (ii) the new credit
agreement required to cure existing covenant violations and effect the mergers
and provide ongoing financing to the combined company; (iii) the new optometric
center administrative services agreement required by the Settlement Agreement
which resolved certain litigation raised by Prime directors and officers and is
required by the merger agreement; and, (iv) the disposition of current Saratoga
subsidiaries. In these proforma combined financial statements, shareholder
approval of the name change of Saratoga to OptiCare Health Systems, Inc. has
been assumed and OptiCare Health represents the combined company.
The parties to the merger agreement executed a term letter agreement with
Bank Austria/
Creditanstalt on June 9, 1999 to replace the current Prime facility with a new
facility for the combined company. The parties are proceeding towards execution
of a definitive credit agreement. The terms of the new facility are as follows:
The credit facility will total $29.2 million with $20 million of term
borrowings and $9.2 million of revolving borrowing availability. The agreement
requires the combined company to maintain certain financial ratios. The first
principal payment on the term facility will be January 1, 2001, the facility
has an interest rate of LIBOR plus 2.25% with a reduction of .50% if additional
capital is raised within 180 days after the close of the merger. The bank will
have a first priority lien on all assets and a pledge of 100% of the stock of
the combined company's subsidiaries.
The transaction specific terms of the new credit agreement include the
following:
1. a requirement to use the cash received in the disposal of the
ophthalmology business (at least $10.8 million) to repay outstanding bank
debt;
2. assumption by the bank of no more the $3.63 million of physician
promissory notes received as part of the disposal of the ophthalmology
business;
3. purchase by the bank of 307,700 shares of OptiCare Health common
stock; and,
4. a $3.0 million reduction of debt for ophthalmology practices for which
the bank has taken responsibility for collecting the practice assets.
As part of the agreement, the bank has agreed to accept 500,000 of Prime
common stock as an up front financing fee for the agreed new facility.
The Prime acquisition has been accounted for as a reverse acquisition
whereby Prime has acquired Saratoga at book value with no purchase accounting
adjustments. The acquisition of OptiCare by Saratoga (immediately following the
Prime/Saratoga Merger) has been accounted for under the purchase method of
accounting with the excess of purchase price over estimated fair value of the
net assets acquired being recorded as goodwill. Accordingly, for accounting
purposes, Prime is the accounting acquirer and the surviving accounting entity.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate.
Management does not expect material changes to purchase accounting and other
pro forma adjustments upon final allocation of purchase price and completion of
the mergers and related transactions. The unaudited pro forma combined
financial information presented herein is not necessarily indicative of the
results of operations or financial position that the combined company would
have obtained had such events occurred at the beginning of the period, as
assumed, or of the future results or financial position of the combined
company.
The pro forma combined financial statements should be read in conjunction
with the audited financial statements of Prime, OptiCare and Saratoga contained
herein.
F-3
<PAGE>
OPTICARE HEALTH SYSTEMS, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1999
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRIME OPTICARE SARATOGA ADJUSTMENTS COMBINED
------------- -------------- ------------ ---------------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash & cash
equivalents .................. $ 6,096,260 $ 640,781 $ 190,000 $ (1,770,000)(a) $ 297,041
$ (730,000)(a)
(2,000,000)(b)
(2,000,000)(c)
(144,000)(d)
Trade receivables, net ......... 6,230,260 6,749,252 12,979,512
Inventories .................... 1,452,185 1,797,964 3,250,149
Investment in
discontinued
operations ................... 5,906,018 (5,906,018)(e)
Other current assets ........... 2,527,336 1,581,367 22,000 (8,000)(d) 4,108,703
----------- ----------- --------- ------------- -----------
Total current assets ......... 22,212,059 10,769,364 212,000 (12,558,018) 20,635,405
PROPERTY AND
EQUIPMENT, net ................. 4,450,533 6,049,804 34,000 (34,000)(d) 10,500,337
Intangible assets, net .......... 1,247,808 3,262,748 7,581,625 (a) 29,029,451
2,000,000 (c)
(451,916)(j)
15,389,186 (i)
OTHER ASSETS ................... 448,126 266,481 960,000 (f) 2,404,607
730,000 (a)
-------------
TOTAL ASSETS ................. $28,358,526 $20,348,397 $ 246,000 $ 13,616,877 $62,569,800
=========== =========== ========= ============= ===========
</TABLE>
F-4
<PAGE>
OPTICARE HEALTH SYSTEMS, INC.
PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF MARCH 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRIME OPTICARE SARATOGA ADJUSTMENTS COMBINED
---------------- -------------- ---------- ---------------------- --------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Bank debt ........................ $ 39,393,074 $ 2,400,000 $ 5,000 $ (7,781,389)(e)
(3,030,579)(e)
(2,000,000)(b)
(3,629,010)(e)
(5,000)(d)
(25,352,096)(h)
Accounts payable and
accrued expenses ............... 11,852,209 3,143,441 1,000 (1,000)(d) $18,199,580
3,203,930 (e)
Other ............................ 1,712,026 2,281,474 3,993,500
------------- ----------- -----------
Total current liabilities ......... 52,957,309 7,824,915 6,000 (38,595,144) 22,193,080
Long-term bank debt ............... 25,352,096 (h) 23,552,096
(1,800,000)(k)
Convertible subordinated
debt ............................. 4,000,000 (g) 4,000,000
Seller debt ....................... 1,041,987 5,067,720 (e) 6,109,707
Other long-term debt and
capital leases ................... 809,489 14,000 2,000,000 (g) 2,357,573
(451,916)(j)
(14,000)(d)
Deferred tax liability ............ 2,055 2,055
------------- -----------
Total liabilities ................. 53,768,853 8,866,902 20,000 (4,441,244) 58,214,511
Mandatorily
redeemable preferred
stock ............................ 9,800,000 (9,800,000)(g) 0
Stockholders' equity
(deficit) (9,307,700
common shares
outstanding on a pro
forma basis) ..................... (35,210,327) 11,481,495 226,000 263,310 (e) 4,355,289
5,811,625 (a)
3,800,000 (g)
(166,000)(d)
960,000 (f)
15,389,186 (i)
1,800,000 (k)
--------------
Total liabilities,
preferred stock and
stockholders' equity
(deficit) ...................... $ 28,358,526 $20,348,397 $246,000 $ 13,616,877 $62,569,800
============= =========== ======== ============== ===========
</TABLE>
F-5
<PAGE>
OPTICARE HEALTH SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRIME OPTICARE SARATOGA ADJUSTMENTS COMBINED
-------------- -------------- ------------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Net revenues .............. $18,095,536 $11,055,964 $ 29,151,500
COSTS AND EXPENSES:
Compensation expense....... 2,620,802 5,658,285 $ 8,279,087
Other operating
expenses ................ 14,058,192 4,999,233 91,000 (91,000)(d) $ 19,057,425
Interest expense .......... 977,872 47,903 (1,000) 1,000 (d) $ 572,376
(678,419)(l)
40,000 (m)
90,000 (n)
95,020 (o)
Depreciation and
amortization ............ 312,210 382,800 2,000 (2,000)(d) $ 1,018,789
75,816 (p)
173,892 (q)
48,000 (r)
26,071 (s)
--------
Total costs and
expenses ................ 17,969,076 11,088,221 92,000 (221,620) 28,927,677
----------- ----------- ------ -------- ------------
Income (loss) from
continuing operations
before income taxes ..... 126,460 (32,257) (92,000) 221,620 223,823
Provision for (benefit
from) income taxes ...... 46,790 (14,150) 56,890 (t) 89,530
----------- ----------- -------- ------------
Net income (loss) from
continuing operations. $ 79,670 $ (18,107) $ (92,000) $ 164,730 $ 134,293
=========== =========== ========== ============== ============
0
Pro forma basic
weighted average
shares outstanding...... 3,465,292 (3,240,292))(u) 9,307,700
8,775,000 (v)
307,700 (k)
Pro forma basic loss
per share .............. $ (0.03) $ 0.01
</TABLE>
F-6
<PAGE>
OPTICARE HEALTH SYSTEMS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRIME OPTICARE SARATOGA ADJUSTMENTS COMBINED
---------------- -------------- -------------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Net revenues .............. $ 64,612,298 $34,744,629 $ 20,000 $ (20,000)(d) $ 99,356,927
COSTS AND EXPENSES:
Compensation
expense ................. 9,275,371 20,178,772 29,454,143
Other operating
expenses ................ 52,226,689 14,443,525 351,000 (351,000)(d) 66,670,214
Interest expense, net ..... 4,498,081 (73,477) (18,000) 18,000 (d) 2,611,009
(2,713,674) (l)
160,000 (m)
360,000 (n)
380,079 (o)
Depreciation and
amortization ............ 1,417,296 1,063,074 11,000 (11,000) (d) 3,775,488
303,265 (p)
695,567 (q)
192,000 (r)
104,286 (s)
--------------
Total costs and
expenses ............... 67,417,437 35,611,894 344,000 862,477 102,510,854
------------ ----------- ---------- -------------- ------------
Income (loss) from
continuing
operations before
income taxes ............ (2,805,139) (867,265) (324,000) 842,477 (3,153,927)
Provision for (benefit
from) income
taxes ................... 433,516 (364,877) (1,330,210)(t) (1,261,571)
------------ ----------- -------------- ------------
Net income (loss)
from continuing
operations .............. $ (3,238,655) $ (502,388) $ (324,000) $ 2,172,687 $ (1,892,356)
============ =========== ========== ============== ============
Pro forma basic
weighted average
shares outstanding ...... 3,465,292 (3,240,292) (u) 9,307,700
8,775,000 (v)
307,700 (k)
Pro forma basic loss
per share ............... $ (0.09) $ (0.20)
</TABLE>
F-7
<PAGE>
OPTICARE HEALTH SYSTEMS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Adjustment to reflect consideration for the new 40-year, optometric
center administrative services agreement between Prime and a
professional corporation and the Settlement Agreement.
<TABLE>
<S> <C>
$1,770,000 Cash consideration
5,811,625 Common equity issued by Prime--3,026,888 shares at $1.92 per share
- ----------
$7,581,625 Amount recorded as an intangible asset related to the administrative services
==========
agreement to be amortized over 25 years.
$ 730,000 Prepaid compensation recorded as an other asset to be amortized over the
employment term.
</TABLE>
(b) Adjustment to reflect the use of cash on hand to pay down bank
indebtedness in conjunction with the new Prime credit agreement.
(c) Adjustment to reflect use of cash on hand to pay merger related
expenses.
(d) Adjustment to reflect the transfer of existing Saratoga net assets
and operations required by the Merger Agreement of Saratoga Holdings
I, Inc., which will be spun off prior to the closing of the mergers.
(e) Adjustment to reflect the disposal of the ophthalmology segment of
Prime primarily via the sale of practice assets back to physicians
required to be substantially performed as a condition to the
mergers.
The amounts are estimated based upon signed transition agreements and
ongoing negotiations.
<TABLE>
<S> <C>
$ 7,781,389 Cash to be received and used to pay down indebtedness
3,030,579 Agreed reduction in bank indebtedness to reflect practice assets for which the
------------
bank has taken responsibility for collection
10,811,968 Subtotal
(5,067,720) New subordinated long term debt issued to physicians at an interest rate of 7%
to 8% with maturities ranging from one to four years as part of the disposal of
the ophthalmology operations
3,629,010 New promissory notes from the physicians assumed by the bank, resulting in an
immediate reduction in bank indebtedness
(263,310) Issuance of new Prime common equity based on the historical book value of
------------
Prime common stock
9,109,948 Total consideration
(3,203,930) Expenses associated with the disposal
------------
$ 5,906,018 March 31, 1999 investment in discontinued operations
============
</TABLE>
(f) Adjustment to reflect common equity in Prime to be issued to the
lender as deferred financing fees for the new credit agreement.
Prime will issue 500,000 shares at $1.92 per share before the
closing of the mergers. This other asset will be amortized over the
term of the new credit facility.
(g) Adjustment to reflect the cancellation of the Prime preferred stock
in conjunction with the mergers. In exchange for such cancellation
the following will be issued:
<TABLE>
<S> <C>
$3,800,000 Common equity issued by Prime--approximately 2.0 million shares based on
$1.92 per share
4,000,000 Convertible subordinated debt issued in conjunction with the mergers
2,000,000 Subordinated long term debt issued in conjunction with the mergers
----------
$9,800,000
==========
</TABLE>
Pursuant to the merger agreement, the 8,000 shares of Prime Class A
Preferred Stock and warrants held by Marlin shall be exchanged for the
following: (i) 2,000 shares and the outstanding warrants shall be converted
into or exchanged for common shares of Prime; (ii) 2,000 shares and
cancellation of the warrants will be exchanged for a subordinated
promissory note of OptiCare Health in the principal amount of $2,000,000
bearing an agreed market rate of interest with a term of three years; and,
4,000 shares shall be exchanged for a redeemable, non-interest bearing
convertible promissory
F-8
<PAGE>
note of OptiCare Health in the principal amount of $4,000,000 with a term
of three years. If after 180 days, OptiCare Health has not completed an
equity offering in order to redeem the note, the note begins to accrue
interest at a rate of 9%. If such note is not redeemed after 365 days,
Marlin shall have the option to convert the note into OptiCare Health
common stock at a conversion price equal to the greater of (x) the closing
market price of OptiCare Health on the first trading day following
effectiveness or (y) 90% of the average closing price of OptiCare Health
common stock for the 20 trading days next preceding the conversion date.
(h) Adjustment to reflect the classification of the new bank debt as
long-term according to the agreed terms.
(i) Adjustment to reflect the purchase of OptiCare via the issuance of
approximately 4.39 million shares of Saratoga at an estimated $6.125
per share:
<TABLE>
<S> <C>
$ 26,870,681 Common equity issued by Saratoga
(11,481,495) Estimated fair value of net assets acquired
-------------
$ 15,389,186 Goodwill
=============
</TABLE>
(j) Adjustment to reflect the cancelation of note payable to related
parties in conjunction with the settlement agreement and the new
administrative services agreement.
(k) Adjustment to reflect the issuance of 307,700 shares of the combined
company at an agreed price of $5.85 per share to the bank in
exchange for a $1.8 million reduction in bank indebtedness as
required by the terms of the new credit agreement.
(l) Adjustment to reflect reduction of interest expense based upon new
bank indebtedness of $23.6 million at an interest rate of 7.5% per
annum.
(m) Adjustment to reflect estimated interest expense of 8% per annum on
the $2 million of subordinated promissory notes. See Note (g).
(n) Adjustment to reflect agreed interest expense on the convertible
subordinated debt of 9% per annum. See Note (g).
(o) Adjustment to reflect interest expense on new physician debt issued
by Prime at an agreed rate of 7.5% per annum. See Note (e).
(p) Adjustment to reflect amortization of intangibles recorded on the
new administrative service agreement referenced in Note (a) over an
estimated contract term of 25 years on straight line basis.
(q) Adjustment to reflect amortization of goodwill recorded on the
purchase of OptiCare referenced in Note (c) and Note (i) over an
estimated useful life of 25 years.
(r) Adjustment to reflect the amortization of deferred financing fees
reflected in Note (f) over the anticipated term of the amended
credit agreement of five years.
(s) Adjustment to reflect the amortization of prepaid compensation
recorded in Note (a) over the 7-year term of the related employment
agreements.
(t) Adjustment to reflect estimated tax at the statutory rate of 40%.
(u) Adjustment to reflect reverse stock split of Saratoga contemplated
herein and in conjunction with the mergers.
(v) Adjustment to reflect the issuance of new Saratoga common shares to
effect mergers.
F-9
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------ ------------
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 190 $ 290
Marketable securities ................................................ 13 11
Trade receivables, net ............................................... - -
Investment in past due accounts receivable ........................... 9 10
------- -------
Total current assets .................................................. 212 311
Equipment, net of accumulated depreciation ............................ 34 36
------- -------
Total assets .......................................................... $ 246 $ 347
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............................. $ 1 $ 10
Current maturities of debt ........................................... 5 5
------- -------
Total current liabilities ............................................. 6 15
Long-term debt, net of current portion ................................ 14 16
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized......... -- --
Common Stock, $.001 par value; 50,000,000 shares authorized,
3,465,292 shares issued and outstanding at March 31, 1999
and December 31, 1998 .............................................. 3 3
Additional paid-in capital ........................................... 2,490 2,490
Accumulated deficit .................................................. (2,240) (2,148)
Treasury stock, at cost .............................................. (2) (2)
Other comprehensive loss ............................................. (25) (27)
--------- ---------
Total stockholders' equity ............................................ 226 316
--------- ---------
Total liabilities and stockholders' equity ............................ $ 246 $ 347
========= =========
</TABLE>
See accompanying notes.
F-10
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Gain on sale of marketable securities ....................... $ -- $ 21
Interest income ............................................. 1 7
------ ------
1 28
Costs and expenses:
Depreciation ................................................ 2 2
General and administrative .................................. 91 95
Loss on marketable securities ............................... -- --
Interest expense ............................................ -- --
------ ------
93 97
Loss before income taxes ..................................... (92) (69)
Income tax benefit ........................................... -- --
------ ------
Net loss ..................................................... $ (92) $ (69)
====== ======
Basic and diluted loss per share ............................. $ (.03) $ (.02)
====== ======
Weighted-average number of common shares outstanding ......... 3,465 3,465
Total comprehensive loss ..................................... $ (90) $ (69)
====== ======
</TABLE>
See accompanying notes.
F-11
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ...................................................... $ (92) $(69)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation ................................................. 2 2
Provision for doubtful accounts .............................. -- --
Changes in operating assets and liabilities:
Trade receivables ............................................ -- --
Investment in past due accounts receivable ................... 1 --
Other assets ................................................. -- (5)
Accounts payable and accrued liabilities ..................... (9) 3
-------- ------
Net cash used in operating activities ......................... (98) (69)
------- ------
INVESTING ACTIVITIES
Purchase of equipment ......................................... -- (1)
------- -------
Net cash used in investing activities ......................... -- (1)
------- -------
FINANCING ACTIVITIES
Payments on borrowings ........................................ (2) (1)
-------- -------
Net cash used in financing activities ......................... (2) (1)
-------- -------
Net decrease in cash and cash equivalents ..................... (100) (71)
Cash and cash equivalents at beginning of period .............. 290 666
======= ======
Cash and cash equivalents at end of period .................... $ 190 $595
======= ======
</TABLE>
See accompanying notes.
F-12
<PAGE>
SARATOGA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements are those of
the Company and its subsidiaries, all of which are wholly owned, and have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation for
the periods indicated have been included. Operating results for the three month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. The Balance Sheet at
December 31, 1998 has been derived from the audited financial statements at
that date, but does not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. The
accompanying financial statements should be read in conjunction with the
audited consolidated financial statements (including the notes thereto) for the
year ended December 31, 1998. Certain amounts shown in the 1998 financial
statements have been reclassified to conform to the 1999 presentation.
2. COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which requires
disclosure of total non-stockholder changes in equity in interim periods and
additional disclosures of the components of non-stockholder changes in equity
on an annual basis. Total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Net loss ......................................... $ (92) $ (69)
Unrealized gain on marketable securities ......... 2 --
===== =====
Total comprehensive loss ......................... $ (90) $ (69)
===== =====
</TABLE>
3. INCOME TAXES
The Company has determined that a valuation allowance should be applied
against the deferred tax assets related to the net operating losses of the
Company due to uncertainty regarding the assets' realizability. The difference
between the tax benefit recorded for the three months ended March 31, 1999 and
the benefit calculated at the federal statutory rate is primarily due to the
valuation allowance applied against the deferred tax assets.
4. PENDING TRANSACTIONS
On April 12, 1999 the Company entered into an agreement and plan of merger
with OptiCare Eye Health Centers, Inc., a provider of consulting,
administrative and other support services to optometry eyecare centers located
in Connecticut, and PrimeVision Health, Inc., a vertically integrated vision
services company, whereby each of those companies would be merged with two
wholly-owned, newly organized subsidiaries of Saratoga Resources, Inc. in an
all-stock transaction by Saratoga Resources issuing 97.5% of the Company's
common stock to the shareholders of Opticare and Prime.
As contemplated by the OptiCare/Prime Vision merger, Saratoga-Delaware
proposes to contribute substantially all of its assets to Saratoga-Texas, a
wholly-owned subsidiary. Saratoga-Texas will continue
F-13
<PAGE>
SARATOGA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
its operations in the energy industry, utilizing its database for oil and gas
prospect evaluation and development. Saratoga-Delaware then proposes to
spin-off all of the stock to Saratoga-Texas to the current stockholders of
Saratoga-Delaware on a one-for-one basis to provide Saratoga-Texas with its own
separate management, control and incentive structure.
Saratoga-Delaware has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933 to register the
proposed spin-off of approximately 90% of the common stock of its wholly owned
subsidiary Saratoga Holdings I, Inc. to the stockholders of Saratoga-Delaware
on a one-for-one basis. The remaining 10% will be contributed to
Saratoga-Texas.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Saratoga Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Saratoga Resources, Inc. and Subsidiaries at December 31, 1998, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
March 31, 1999
F-15
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholders
Saratoga Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and Subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based upon our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Saratoga Resources, Inc.
and Subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for year then ended, in conformity with generally accepted
accounting principles.
Hein + Associates LLP
/s/ Hein + Associates LLP
Houston, Texas
January 15, 1998
F-16
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 290 $ 666
Marketable securities ................................................. 11 --
Trade receivables, less allowance for doubtful accounts of $23
at December 31, 1998 and 1997 ....................................... -- --
Investment in past due accounts receivable ............................ 10 --
------- -------
Total current assets ................................................ 311 666
------- -------
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 36 44
------- -------
TOTAL ASSETS ........................................................... $ 347 $ 710
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities .............................. $ 10 $ 2
Accrued legal ......................................................... -- 16
Current maturities of debt ............................................ 5 4
------- -------
Total current liabilities ........................................... 15 22
------- -------
Long-term debt, net of current portion ................................ 16 21
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares authorized ......... -- --
Common Stock, $.001 par value; 50,000,000 shares authorized,
3,465,292 shares issued and outstanding at December 31,
1998 and 1997 ....................................................... 3 3
Additional paid-in capital ............................................ 2,490 2,490
Accumulated deficit ................................................... (2,148) (1,824)
Treasury stock, at cost ............................................... (2) (2)
Other comprehensive loss .............................................. (27) --
--------- ---------
Total stockholders' equity .......................................... 316 667
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................. $ 347 $ 710
========= =========
</TABLE>
See accompanying notes.
F-17
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31
---------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUES:
Gain on sale of marketable securities ........................ $ 19 $ --
Interest income .............................................. 19 31
Other ........................................................ 1 4
------ ------
39 35
COSTS AND EXPENSES:
Depreciation ................................................. 11 7
General and administrative ................................... 350 446
Loss on marketable securities ................................ 1 --
Interest expense ............................................. 1 9
------ ------
363 462
------ ------
Gain arising from settlement of lawsuit ...................... -- 309
------ ------
Loss before income taxes ..................................... (324) (118)
Income tax benefit ........................................... -- --
------ ------
Net loss ..................................................... $ (324) $ (118)
====== ======
Basic and diluted loss per share: ............................ $ (.09) $ (.03)
====== ======
Weighted-average number of common shares outstanding ......... 3,465 4,260
====== ======
</TABLE>
See accompanying notes.
F-18
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------------ PAID-IN ACCUMULATED TREASURY COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK LOSS EQUITY
------------- ---------- ------------ ------------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1996 ............................ 6,809 $ 7 $2,909 $ (1,706) $(2) $ -- $1,208
Acquisition of stock arising from
settlement of lawsuit .......... (2,465) (3) (244) -- -- -- (247)
Purchase of stock arising from
settlement of lawsuit .......... (8) -- (1) -- -- -- (1)
Purchase of stock from former
director ....................... (871) (1) (174) -- -- -- (175)
Net loss ........................ -- -- -- (118) -- -- (118)
-------- ----- ------- -------- --- ----- -------
BALANCES AT DECEMBER 31,
1997 ............................ 3,465 3 2,490 (1,824) (2) -- 667
Net loss ........................ -- -- -- (324) -- -- (324)
Unrealized loss on marketable
securities ..................... -- -- -- -- -- (27) (27)
-------
Comprehensive loss .............. -- -- -- -- -- -- (351)
-------- ----- ------- -------- ----- ----- -------
BALANCES AT DECEMBER 31,
1998 ............................ 3,465 $ 3 $2,490 $ (2,148) $(2) $ (27) $ 316
======== ===== ======= ======== ===== ===== =======
</TABLE>
See accompanying notes.
F-19
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................. $(324) $(118)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized gain on sale of marketable securities, net ..................... (18) --
Depreciation ............................................................ 11 7
Provision for doubtful accounts ......................................... -- 23
Gain arising from settlement of lawsuit ................................. -- (309)
Changes in operating assets and liabilities:
Trade receivables ...................................................... -- 52
Investment in past due accounts receivable ............................. (10) --
Accounts payable and accrued liabilities ............................... 8 (154)
Accrued legal .......................................................... (16) (3)
----- --------
Net cash used in operating activities ................................ (349) (502)
----- -------
INVESTING ACTIVITIES
Purchase of equipment ..................................................... (3) (5)
Purchase of marketable securities ......................................... (62) --
Sale of marketable securities ............................................. 42 --
------- -------
Net cash used in investing activities ................................ (23) (5)
------- --------
FINANCING ACTIVITIES
Purchase of stock from former director .................................... $ -- $(175)
Purchase of stock in settlement of lawsuit ................................ -- (1)
Payments on borrowings .................................................... (4) (1)
-------- --------
Net cash used in financing activities ................................ (4) (177)
-------- -------
Net decrease in cash and cash equivalents .................................. (376) (684)
Cash and cash equivalents at beginning of year ............................. 666 1,350
------- -------
Cash and cash equivalents at end of year ................................... $ 290 $ 666
======= =======
Supplemental Cash Flow Information:
Cash paid for interest .................................................... $ 1 $ 9
Cash paid for income taxes ................................................ $ -- $ --
Equipment acquired with long-term debt .................................... $ -- $ 26
</TABLE>
See accompanying notes.
F-20
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Saratoga Resources, Inc., a Delaware corporation, (the "Company", "Saratoga" or
the "Registrant") had traditionally been engaged in oil and gas exploration and
development of properties located in far southwest and east Texas and in
Louisiana.
During 1997 the Company entered into a purchase and sale agreement for the
acquisition of certain oil and gas properties for a purchase price of $27.5
million. The Company was ultimately unsuccessful in consummating the
acquisition, but was awarded a $400,000 break-up fee, which has been recorded
as a reduction of general and administrative expenses during 1997.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
these estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all investments with maturities of ninety days or less
when purchased to be cash equivalents.
MARKETABLE SECURITIES
All marketable securities are classified as available-for-sale and are
available to support current operations or to take advantage of other
investment opportunities. These securities are stated at estimated fair value
based upon market quotes. Unrealized gains and losses, net of tax, are computed
on the basis of specific identification and are included as a separate
component of stockholders' equity. Realized gains, realized losses, and
declines in value, judged to be other-than-temporary, are included in Other
Income. The cost of securities sold is based on the specific identification
method and interest earned is included in Interest Income.
INVESTMENT IN PAST DUE ACCOUNTS RECEIVABLE
On November 12, 1998, the Company's wholly owned subsidiary Saratoga Holdings
I, Inc. acquired a portfolio of past due accounts receivable for approximately
$10,300 and recorded it at cost. These receivables represent amounts previously
due various major retail businesses arising from the sale of various consumer
products. The face amount of these receivables totals $223,907. The ultimate
collection of these receivables will depend on a variety of factors, many of
which are outside the Company's control. Any collections will reduce the asset
balance until it is $-0-, with any remaining collections recorded as revenue.
EQUIPMENT
Equipment is recorded at cost less accumulated depreciation. Depreciation of
equipment is computed using the straight-line basis over the five year
estimated useful life of the assets.
F-21
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Ordinary maintenance and repairs are charged to expense, and expenditures which
extend the physical or economic life of the assets are capitalized. Gains or
losses on disposition of assets are recognized in income and the related assets
and accumulated depreciation accounts are adjusted accordingly.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This
statement prescribes the use of the liability method whereby deferred tax asset
and liability account balances are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
LOSS PER SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share. Basic
net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is calculated using the weighted average
number of outstanding shares of common stock plus dilutive common stock
equivalents. Diluted net loss per share has not been presented as the effect of
the assumed exercise of warrants is antidilutive due to the Company's net loss.
As such, the numerator and the denominator used in computing both basic and
diluted pro forma net loss per share allocable to holders of common stock are
equal.
COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires disclosure of total non-stockholder
changes in equity in interim periods and additional disclosures of the
components of non-stockholder changes in equity on an annual basis. Total
comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net loss ......................................... $ (324) $ (118)
Unrealized loss on marketable securities ......... (27) --
------ ------
Comprehensive loss ............................... $ (351) $ (118)
====== ======
</TABLE>
SEGMENTS
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments in annual
financial statements and the reporting of selected information about operating
segments in financial statements. The adoption of SFAS No. 131 had no effect on
the disclosure of segment information as the Company continues to consider its
business activities as a single segment.
CONCENTRATIONS OF CREDIT RISK
The Company maintains in a single bank deposits which exceed the amount of
federal deposit insurance available. Management believes the possibility of
loss on these deposits is minimal.
RECLASSIFICATIONS
Certain reclassifications have been made in prior year amounts to conform to
the current year's presentation.
F-22
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. EQUIPMENT
Equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1998 1997
------ -----
<S> <C> <C>
Office equipment ...................... $25 $22
Automobile ............................ 31 31
--- ---
56 53
Less accumulated depreciation ......... 20 9
--- ---
$36 $44
=== ===
</TABLE>
3. LONG-TERM DEBT
As of December 31, 1998, long-term debt consisted of a note payable to a bank
due in monthly installments of $564, including interest at 10%. The note
payable is due August 27, 2002 and is collateralized by an automobile.
Future maturities of the long-term debt as of December 31, 1998 are as follows:
$5,000 in 1999; $6,000 in 2000; $6,000 in 2001; and $4,000 in 2002.
4. LEASE OBLIGATIONS
At December 31, 1998 the Company maintains an office in Austin, Texas on a
month-to-month basis at a current rate of $2,175 per month. The Company also
leases an office in Houston, Texas from a director of the Company on a
month-to-month basis at no charge.
5. INCOME TAXES
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $420,000. The net operating losses will expire
beginning in 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation, if applicable, may result in the
expiration of net operating losses.
F-23
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes for the years ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets ........................................ $ (717) $ --
---------- ---------
Total deferred tax liabilities ............................. (717) --
Deferred tax assets:
Tax carryforwards ......................................... 155,414 40,000
Accrual to cash adjustment ................................ 3,700 --
---------- ---------
Total deferred tax assets .................................. 159,114 40,000
---------- ---------
Net deferred tax assets before valuation allowance ......... 158,397 40,000
Valuation allowance for deferred tax assets ................ (158,397) (40,000)
========== =========
Net deferred tax assets (liabilities) ...................... $ -- $ --
========== =========
</TABLE>
The Company has established valuation allowances equal to the net deferred tax
assets due to uncertainties regarding their realization. The valuation
allowance increased by approximately $118,000 during the year ended December
31, 1998 due to net operating losses which were not benefited.
The reconciliation of income tax attributable to continuing operations at the
U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Pre-tax book income ........................... 34.0% 34.0%
State taxes (net of federal benefit) .......... 3.0% --
Permanent items and other ..................... (0.4)% --
Application of valuation allowance ............ (36.6)% (34.0)%
===== =====
0.0% 0.0%
===== =====
</TABLE>
6. LITIGATION
From May, 1996 to May, 1997, the Company was involved in litigation with Joseph
T. Kaminski ("Kaminski"), a former executive officer and director of the
Company. As previously reported by the Company in a report filed with the
Securities and Exchange Commission, the most recent of which was Form 8-K
(filed March 14, 1997), the Company and two of its directors, Thomas F. Cooke
and Randall F. Dryer, entered into a settlement agreement and full and final
release (the "settlement agreement") dated March 10, 1997 with Kaminski, in
full settlement of all matters concerning the lawsuits.
Pursuant to the terms of the settlement agreement, Kaminski transferred all of
his equity interest in the Company, consisting of 2,465,371 shares of common
stock and 100,000 stock warrants, to the Company and forgave amounts owed him
by the Company of $62,000. As a result of this settlement, the Company recorded
a gain of $309,000. Kaminski also agreed to sell to the Company 8,000 shares of
the Company's common stock held in trust in exchange for approximately $1,000.
Both the Company and Kaminski agreed to release and discharge any and all
claims or causes of action of every nature existing between the parties.
F-24
<PAGE>
SARATOGA RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accordingly, all claims and counterclaims by and against the Company and its
two directors Thomas F. Cooke and Randall F. Dryer have been dismissed, and
there is no pending litigation against the Company or its directors at December
1998 or 1997.
7. STOCKHOLDERS' EQUITY
Preferred stock may be issued from time to time in one or more series. Prior to
each issuance, the board of directors is authorized to determine the number of
shares, relative powers, preferences, rights and qualifications, limitations or
restrictions of all shares of such series. Shares of any series of preferred
stock which have been acquired by the Company or which, if convertible or
exchangeable, have been converted into or exchanged for shares of authorized
and unissued shares of stock of another class, would have the status of
authorized and unissued shares of preferred stock, subject to the conditions
adopted by the board of directors of the Company.
The Company issued warrants to a former consultant to purchase 6,667 shares of
common stock for an exercise price of 120% of the share price that is offered
to the public in any public offering. These warrants were issued in December,
1993 and have no expiration date. The Company issued warrants to the Company's
Chairman to purchase 100,000 shares of common stock for an exercise price of
$1.60 per share. These warrants were issued in December, 1994 and expire in
May, 1999.
8. PENDING TRANSACTIONS
On December 22, 1998 the Company entered into letters of intent with
PrimeVision Health, Inc., a vertically integrated vision services company, and
OptiCare Eye Health Centers, Inc., a provider of consulting, administrative and
other support services to optometry eyecare centers located in Connecticut,
whereby the Company would acquire Prime and OptiCare in an all-stock
transaction by issuing 97.5% of the Company's common stock to the shareholders
of Prime and OptiCare. However, the Company has not yet entered into a formal
binding agreement for these acquisitions.
As contemplated by the PrimeVision/OptiCare merger, Saratoga-Delaware proposes
to contribute substantially all of its assets to Saratoga-Texas, its wholly-
owned subsidiary. Saratoga-Texas will continue its operations in the energy
industry, utilizing its database for oil and gas prospect evaluation and
development. Saratoga-Delaware then proposes to spin-off all of the stock to
Saratoga-Texas to the current stockholders of Saratoga-Delaware on a
one-for-one basis to provide Saratoga-Texas with its own separate management,
control and incentive structure.
Saratoga-Delaware formed Saratoga Holdings in November 1998 as a wholly-owned
subsidiary and has caused it to commence operations in the business of
acquiring, reselling, managing and collecting portfolios of delinquent and
defaulted accounts receivable. Saratoga-Delaware has filed a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933 to register the proposed spin-off of approximately 90% of the common
stock of Saratoga Holdings to the stockholders of Saratoga-Delaware on a
one-for-one basis. The remaining 10% will be contributed to Saratoga-Texas.
F-25
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................. $ 2,895,109 $ 5,955,527
Cash in escrow ........................................................ 3,201,151 --
Accounts receivable net ............................................... 6,230,260 4,571,392
Inventories ........................................................... 1,452,185 1,359,524
Investment in discontinued operations ................................. 5,906,018 5,582,428
Income tax receivable ................................................. 827,623 1,088,502
Deferred tax asset, current ........................................... 1,499,595 1,499,595
Other current assets .................................................. 200,118 179,963
------------- -------------
Total current assets ................................................... 19,010,908 20,236,933
Property and equipment, net ............................................ 4,450,533 4,510,254
Intangible assets, net ................................................. 1,247,808 1,356,069
Notes receivable from related parties, less current portion ............ 170,317 175,506
Deferred tax asset, non-current ........................................ 122,903 122,903
Other assets ........................................................... 4,907 4,907
Restricted cash ........................................................ 150,000 150,000
------------- -------------
Total assets ........................................................... $ 28,358,527 $ 26,556,572
============= =============
Liabilities and shareholders' (deficit) equity .........................
Current liabilities:
Accounts payable and accrued expenses ................................. $ 6,307,534 $ 4,903,381
Accrued salaries and related expenses ................................. 3,542,883 3,404,126
Income tax payable .................................................... -- --
Deferred income tax liability, current ................................ 1,620,443 1,620,443
Current portion of long-term debt ..................................... 39,393,074 39,784,074
Current portion of capital leases ..................................... 91,583 91,583
Interest payable ...................................................... 2,001,793 1,394,411
------------- -------------
Total current liabilities .............................................. 52,957,310 51,198,018
Capital lease obligations, less current portion ........................ 178,659 202,119
Long term debt, less current portion ................................... 180,164 192,436
Deferred tax liability ................................................. 2,055 2,055
Notes payable to related party ......................................... 450,666 451,916
------------- -------------
Total liabilities ...................................................... 53,768,854 52,046,544
Mandatorily redeemable preferred stock, $.01 par value, 5,000,000 shares
authorized, 8,000 shares issued and outstanding 9,800,000 9,200,000
Shareholders' (deficit) equity:
Common stock, $.01 par value, 15,000,000 shares authorized; 7,409,574
shares issued and outstanding ....................................... 74,096 74,096
Additional paid-in capital ............................................ 5,190,207 5,790,232
Accumulated deficit ................................................... (40,474,630) (40,554,300)
------------- -------------
Total shareholders' (deficit) equity ................................... (35,210,327) (34,689,972)
------------- -------------
Total liabilities, preferred stock and shareholders' (deficit) equity .. $ 28,358,527 $ 26,556,572
============= =============
</TABLE>
See accompanying notes.
F-26
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenues .......................................................... $18,095,536 $17,121,502
Cost and expenses:
Cost of sales .................................................... 12,693,786 12,094,127
Salaries, wages and benefits ..................................... 2,620,802 2,282,462
General and administrative expenses .............................. 1,364,406 1,328,578
Depreciation and amortization .................................... 321,210 320,303
Interest expense ................................................. 977,872 1,155,564
----------- -----------
Total costs and expenses .......................................... 17,969,076 17,172,035
----------- -----------
Loss from continuing operations before income taxes ............... 126,460 (50,533)
Income tax (benefit) expense ...................................... 46,790 (4,762)
----------- -----------
Income from continuing operations ................................. 79,670 (45,771)
Income (loss) from discontinued operations (Note 3) ............... 324,480
Loss from disposal of discontinued operations, net of tax .........
Net income ........................................................ $ 79,670 $ 278,709
=========== ===========
Weighted average shares outstanding ............................... 7,409,574 6,946,610
Loss per common share: ............................................
Income (loss) from continuing operations .......................... $ 0.01 $ (0.01)
=========== ===========
Net Income (loss) ................................................. $ 0.01 $ 0.04
=========== ===========
</TABLE>
See accompanying notes
F-27
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
---------------------------------
1999 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net loss from continuing operations .............................. $ 79,669 $ (45,771)
Net income (loss) from discontinued operations .................... (323,590) 324,480
Adjustments to reconcile net loss from continuing operations to net
cash provide by (used in) operating activities: ..................
Depreciation and amortization .................................... 321,210 320,303
Loss on disposal of discontinued operations ......................
Loss on sale of equipment ........................................
Changes in operating assets and liabilities: .....................
Accounts receivable .............................................. (1,658,868) (2,175,132)
Inventories ...................................................... (92,661) 521,143
Other current assets .............................................. 240,724 (4,290)
Other assets .....................................................
Accounts payable and accrued expenses ............................ 2,186,522 (340,637)
Cash provided by (used in) discontinued operations ................ 2,100,201
------------
Net cash provided by (used in) operating activities ............... 753,006 700,297
------------ ------------
Investing activities:
Purchases of equipment -- continuing operations .................. (181,705) (1,079)
Additions to intangible assets -- continuing operations ...........
Net cash used in investing activities ............................. (181,705) (1,079)
Financing activities:
Proceeds from issuance of long-term debt
Principal payments on bank debt .................................. (400,000)
Principal payments on other long-term debt ....................... (7,108) (7,363)
Proceeds from issuance of redeemable preferred stock .............
Payment of financing costs .......................................
Payments on capital lease obligations ............................ (23,460) (26,552)
------------ ------------
Net cash provided by financing activities ......................... (430,568) (33,915)
------------ ------------
Increase (decrease) in cash and cash equivalents .................. 140,733 665,303
Cash and cash equivalents at beginning of year .................... 6,105,527 2,628,142
------------ ------------
Cash and cash equivalents at end of year .......................... $ 6,246,260 $ 3,293,445
============ ============
</TABLE>
See accompanying notes.
F-28
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
periods ended March 31, 1999 and 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information, refer to the December 31, 1998 consolidated financial statements
and footnotes thereto included herein.
2. CASH IN ESCROW
As of March 31, 1999, Drs. Barker and Harrold, shareholders of the company
and executive officers and shareholders of OECC, had filed a legal action
against the Company that charged the existing administrative services agreement
between OECC and the Company had been breached. In conjunction with the legal
action outsanding as of March 31, 1999, the court held $3,201,151 of Company
cash pending settlement or resolution of the legal action. On April 9, 1999, a
settlement agreement was signed between the parties providing for payment to
the Drs. Barker and Harrold of $2.5 million in cash, a shareholding position of
32% of the Company by Drs. Barder and Harrold before the closing of the merger
with OptiCare and a new administrative services agreement between the Company
and OECC.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Prime Vision Health, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Prime
Vision Health, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' (deficit) equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Prime Vision Health, Inc. and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Prime Vision Health, Inc. will continue as a going concern. As more fully
described in Note 2, the Company has incurred recurring operating losses and
has a working capital deficiency. In addition, the Company has not complied
with certain covenants of its loan agreement with a bank. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ ERNST & YOUNG LLP
May 7, 1999
Raleigh, NC
F-30
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 5,955,527 $ 2,478,142
Accounts receivable, less allowance of $441,476 in 1998 and
$334,085 in 1997..................................................... 4,571,392 4,091,446
Inventories ........................................................... 1,359,524 2,272,073
Net current assets of discontinued operations ......................... 5,582,428 8,472,637
Income tax receivable ................................................. 1,088,502 --
Deferred tax asset, current ........................................... 1,499,595 545,274
Other current assets .................................................. 179,965 414,202
------------- ------------
Total current assets ................................................. 20,236,933 18,273,774
Property and equipment, net ............................................ 4,510,254 4,825,044
Intangible assets, net ................................................. 1,356,069 1,630,770
Net long-term assets of discontinued operations ........................ -- 61,000,290
Notes receivable from related parties, less current portion ............ 175,506 159,027
Deferred tax asset, non-current ........................................ 122,903 344,722
Other assets ........................................................... 4,907 13,169
Restricted cash ........................................................ 150,000 150,000
------------- ------------
TOTAL ASSETS ........................................................... $ 26,556,572 $ 86,396,796
============= ============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................. $ 4,903,381 $ 3,431,732
Accrued salaries and related expenses ................................. 3,404,126 3,381,086
Income tax payable .................................................... -- 280,817
Deferred income tax liability, current ................................ 1,620,443 581,198
Current portion of long-term debt ..................................... 39,784,074 30,628
Current portion of capital lease obligations .......................... 91,583 85,708
Interest payable ...................................................... 1,394,411 497,706
------------- ------------
Total current liabilities ............................................ 51,198,018 8,288,875
Capital lease obligations, less current portion ........................ 202,119 128,238
Long-term debt, less current portion ................................... 192,436 45,928,118
Deferred tax liability ................................................. 2,055 27,142,344
Notes payable to related party ......................................... 451,916 363,431
------------- ------------
TOTAL LIABILITIES ...................................................... 52,046,544 81,851,006
Mandatorily redeemable preferred stock, $.01 par value, 5,000,000
shares authorized, 8,000 shares issued and outstanding ................ 9,200,000 --
Shareholders' (deficit) equity:
Common stock, $.01 par value, 15,000,000 and 80,000,000 shares
authorized; 7,409,574 and 6,916,270 shares issued and
outstanding ......................................................... 74,096 69,163
Additional paid-in capital ............................................ 5,790,232 5,647,527
Accumulated deficit ................................................... (40,554,300) (1,170,900)
------------- ------------
Total shareholders' (deficit) equity ................................... (34,689,972) 4,545,790
------------- ------------
Total liabilities, preferred stock and shareholders' (deficit) equity .. $ 26,556,572 $ 86,396,796
============= ============
</TABLE>
See accompanying notes.
F-31
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES ................................................... $ 64,612,298 $58,346,038 $52,156,761
COST AND EXPENSES:
Cost of sales ............................................. 46,231,126 42,003,409 37,418,325
Salaries, wages and benefits .............................. 9,275,371 9,129,948 7,769,806
General and administrative expenses ....................... 5,995,563 5,195,798 5,492,744
Depreciation and amortization ............................. 1,417,296 1,220,085 1,331,254
Interest expense .......................................... 4,498,081 3,856,261 1,039,126
------------ ----------- -----------
Total costs and expenses ................................. 67,417,437 61,405,501 53,051,255
------------ ----------- -----------
Loss from continuing operations before minority interest
and income taxes .......................................... (2,805,139) (3,059,463) (894,494)
Minority interest .......................................... -- 9,166 76,796
------------ ----------- -----------
Loss from continuing operations before income taxes ........ (2,805,139) (3,068,629) (971,290)
Income tax (benefit) expense ............................... 433,516 (1,034,995) (204,577)
------------ ----------- -----------
Loss from continuing operations ............................ (3,238,655) (2,033,634) (766,713)
Discontinued operations:
Income (loss) from discontinued operations (Note 3) ....... (11,287,396) 628,373 (1,437,464)
Loss from disposal of discontinued operations, net
of tax .................................................. (23,564,016) -- --
------------ ----------- -----------
Net loss .................................................. $(38,090,067) $(1,405,261) $(2,204,177)
============== =========== ===========
Loss per common share (basic and diluted):
Loss from continuing operations ............................ $ (0.80) $ (0.34) $ (0.35)
Net loss .................................................. $ (5.64) $ (0.24) $ (1.00)
Weighted average shares outstanding ........................ 7,190,762 5,914,374 2,209,839
</TABLE>
See accompanying notes.
F-32
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PREFERRED COMMON PAID-IN (ACCUMULATED DEFERRED
STOCK STOCK CAPITAL DEFICIT) COMPENSATION TOTAL
----------- ----------- --------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ...... $ -- $ 8,647 $ 183,744 $ 2,438,538 $ (104,778) $ 2,526,151
Issuance of 45,511 shares of
common stock ................... 455 455
Issuance of 3,966,771 shares
of preferred stock in
exchange for 910,221 shares
of common stock in
connection with the merger
with PrimeVision Group ......... $ 39,668 (9,102) (30,566)
Issuance of stock warrant ........ 124,562 124,562
Issuance of 3,166,465 shares
of common stock ................ 31,665 4,099,803 4,131,468
Amortization of deferred
compensation ................... 104,778 104,778
Net loss for 1996 ................ (2,204,177) (2,204,177)
------------- -------------
Balance at December 31, 1996 ...... 39,668 31,665 4,377,543 234,361 -- 4,683,237
Issuance of 1,600,000 shares
of common stock in
exchange for 3,966,771
shares of preferred stock ...... (39,668) 16,000 (26,332) (50,000)
Purchase of minority interest..... 17 1,596 1,613
Issuance of stock warrant ........ 115,093 115,093
Administrative Services
Agreement renegotiation ........ (969,425) (969,425)
Issuance of 2,148,143 shares
of common stock ................ 21,481 2,149,052 2,170,533
Net loss for 1997 ................ (1,405,261) (1,405,261)
------------- -------------
Balance at December 31, 1997 ...... -- 69,163 5,647,527 (1,170,900) -- 4,545,790
Issuance of stock warrant in
connection with the
issuance of redeemable
preferred stock ................ 1,293,333 1,293,333
Accretion of preferred stock ..... (1,293,333) (1,293,333)
Preferred stock dividends ........ (1,200,000) (1,200,000)
Issuance of 493,304 shares of
common stock ................... 4,933 49,372 54,305
Net loss for 1998 ................ (38,090,067) (38,090,067)
------------- -------------
Balance at December 31, 1998 ...... $ -- $ 74,096 $ 5,790,232 $ (40,554,300) $ -- $ (34,689,972)
========= ======== ============ ============= ========== =============
</TABLE>
See accompanying notes.
F-33
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996
----------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ................................................... $ (38,090,067) $ (1,405,261) $ (2,204,177)
Less: net income (loss) from discontinued
operations ............................................... (34,851,421) 628,373 (1,437,464)
------------- ------------- -------------
Net loss from continuing operations ........................ (3,238,655) (2,033,634) (766,713)
Adjustments to reconcile net loss from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation ............................................. 1,133,322 1,035,661 1,177,848
Amortization ............................................. 283,974 184,424 153,406
Loss on sale of equipment ................................ -- -- 14,478
Changes in operating assets and liabilities:
Accounts receivable ..................................... (479,946) (349,735) (1,888,564)
Inventories ............................................. 912,549 611,388 (271,780)
Other current assets .................................... (1,808,584) (645,341) 135,569
Other assets ............................................ 230,081 (49,179) 766,387
Accounts payable and accrued expenses ................... 3,276,131 4,357,026 1,363,784
Cash provided by (used in) discontinued
operations .............................................. 1,898,798 (26,589,035) (10,921,562)
------------- ------------- -------------
Net cash provided by (used in) operating activities ......... 2,207,670 (23,478,425) (10,237,147)
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of equipment -- continuing operations ............ (599,462) (1,851,237) (375,244)
Additions to intangible assets -- continuing
operations ............................................... (9,273) -- (708,476)
------------- ------------- -------------
Net cash used in investing activities ..................... (608,735) (1,851,237) (1,083,720)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ................... 17,764 28,809,392 10,974,626
Principal payments on long-term debt ....................... (6,000,000) -- --
Proceeds from issuance of redeemable preferred
stock .................................................... 8,000,000 -- --
Payment of financing costs ................................. -- (300,000) (460,098)
Payments on capital lease obligations ...................... (139,314) (95,153) (73,259)
------------- ------------- -------------
Net cash provided by financing activities ................... 1,878,450 28,414,239 10,441,269
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents ............ 3,477,385 3,084,577 (879,598)
Cash and cash equivalents at beginning of year .............. 2,478,142 (606,435) 273,163
------------- ------------- -------------
Cash and cash equivalents at end of year .................... $ 5,955,527 $ 2,478,142 $ (606,435)
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ...................... $ 3,986,581 $ 3,842,730 $ 686,757
Cash paid during the year for income taxes .................. $ 2,154,823 $ 83,750 $ 44,332
</TABLE>
See accompanying notes.
F-34
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Prime Vision Health ("PVH" or the "Company") is a vertically integrated, vision
services company incorporated in Delaware and headquartered in North Carolina.
PVH, within its eye care services business segment is involved in three
vision-related lines of business: (1) managed vision care, (2) buying group and
distribution and (3) optometric practice management and retail optical. In
December 1998, the Board of Directors approved the reorganization and disposal
of the Company ophthalmology practice management segment and related
administrative support functions (the "ophthalmology segment"). Accordingly,
the ophthalmology division is presented as a discontinued operation for
financial reporting purposes.
PVH is a result of a merger between Consolidated Eye Care (CEC) and Prime
Vision Group (PVG) which occurred on July 3, 1996 whereby CEC exchanged all of
its outstanding voting common stock for 3,966,771 shares of voting preferred
stock of PVG. Since the former CEC shareholders retained the majority of the
voting rights in the combined company, CEC was treated as the acquirer in the
business combination. These shareholders, acting collectively as a group of the
former companies CEC and PVG, have the independent right to dissolve the
Company as defined in the corporate by-laws. The stated period of time for a
dissolution to occur commences in January 2001 and ends 60 days later. This
right of dissolution terminates if the Company completes an initial public
offering or is acquired.
The Company operated in two business segments: (1) eye care services, which
includes managed vision care, buying group and distribution and optometric
practice support including retail optical and (2) ophthalmology physician
practice management (ppm) and related administrative support. As discussed in
Note 3, the Board of Directors decided to reorganize and dispose of the
ophthalmology business segment. Segment disclosures relating to the operations
of the ophthalmology physician practice management business segment are
included in the accompanying financial statements as discontinued operations.
Continuing operations of the Company pertain to the eye care services business
segment.
Within the eyecare services segment, the Company provides consulting,
administrative and other support services to optometry eye care centers in
North Carolina. All of the optometry centers are owned by shareholders of the
Company who were formerly shareholders of CEC. The administrative services for
these optometry centers are provided under a 30 year contract which provides a
management fee to the Company.
Within the eyecare services segment, the Company operates managed vision care
business conducted primarily through its two wholly owned subsidiaries which
are licensed as single service Health Maintenance Organizations (HMOs) in North
Carolina and Texas.
In addition, as part of its eyecare services segment, the Company operates a
buying group and distribution business with approximately 4,000 individual
ophthalmology and optometry practices as customers throughout the United
States.
2. MERGER AND RESTRUCTURING
For the year ended December 31, 1998, the Company had a net loss of
approximately $38.1 million. The Company is highly leveraged and is not in
compliance with its bank debt covenants. Accordingly, all bank debt has been
classified in current liabilities. Management has determined that the
ophthalmology segment is the main contributing factor to the Company's
liquidity problems due to lower than anticipated cash flows from the
ophthalmology service agreements as evidenced by the historical operating
losses experienced by the ophthalmology segment. The Company's headquarters in
Raleigh, North Carolina exists primarily to support the ophthalmology segment
and such headquarter expenses were higher than justified by operating earnings
of the ophthalmology segment.
On December 15, 1998, in recognition of the significant losses and the fact
that the physician's practice management business model as operated by the
Company has been largely unsuccessful, the Company
F-35
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
determined that the business should be disposed of and that a combination
should be sought with a related business with a stronger infrastructure.
Subsequent to such decision by the Board, the Merger described in Note 14 was
approved. The Merger and the disposal of the ophthalmology segment should
enable the Company to repay a substantial portion of its bank debt, resulting
in an amendment to such debt to provide financing to the merged entity. The
merger agreement and transition agreements covering the reorganization of the
ophthalmology segment expire on September 30, 1999 if the merger has not been
completed by that date.
3. DISCONTINUED OPERATIONS
On December 15, 1998, the Board of Directors decided to reorganize and dispose
of its ophthalmology segment. Such disposal is currently in process and is
expected to be completed by September 30, 1999.
The disposal is currently being accomplished primarily through cancellation of
the administrative services agreements and the repurchase of practice assets by
the physicians.
The Company's ophthalmology division consisted of 46 managed ophthalmology
practices acquired since 1996 and located throughout the United States. When
acquired, the professional corporation associated with the practice entered
into a 30 or 40 year Administrative Services Agreement ("ASA") whereby PVH
provided consulting, administrative and other support services in return for a
management fee. The management service fee is comprised of a monthly fixed fee,
plus a stated percentage of the net income of the practice. This segment has
performed poorly and accordingly management has decided to reorganize and
dispose of its ophthalmology segment. The Company anticipates that a new
agreement will be entered into with many of these practices following the
reorganization and disposal to provide the services of the Company's other
three divisions. Based upon agreements currently in place or verbally agreed,
the probable loss on the disposal of this segment is estimated to be
approximately $23 million. The investment in discontinued operations on the
balance sheet is shown net of this estimated loss. The ophthalmology segment
has been presented as a discontinued operation.
Summarized information on the discontinued ophthalmology segment follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- -------------- ----------------
<S> <C> <C> <C>
Net revenues ..................................................... $ 69,441,745 $54,554,570 $ 10,559,787
(Loss) income from discontinued operations before taxes .......... (17,884,428) 1,041,178 (2,446,971)
Income tax (benefit) expense ..................................... (6,597,032) 412,805 (1,009,507)
------------- ----------- ------------
Income (loss) from discontinued operations ....................... (11,287,396) 628,373 (1,437,464)
(Loss) on disposal of discontinued operations .................... (23,564,016) -- --
------------- ----------- ------------
Total income (loss) from discontinued operations ................. $ (34,851,412) $ 628,373 $ (1,437,464)
============= =========== ============
Loss (income) per share from discontinued operations ............. $ (4.84) $ 0.10 $ (0.65)
============= =========== ============
</TABLE>
4. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include PVH and all of its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in preparing the consolidated financial statements. In September
1997, the Company acquired the remaining 49% ownership interest in ExPec, Inc.,
thus eliminating the minority interest position held by the former owners.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid, short-term investments with a maturity of
three months or less when purchased to be cash equivalents.
F-36
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES
Inventories consist primarily of eye care products and are stated at the lower
of cost (using the average cost method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets ranging from 3 to 10 years.
STOCK BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which requires
companies to (i) recognize as expense the fair value of all stock-based awards
on the date of grant, or (ii) continue to apply the provisions of APB 25 and
provide pro forma net income disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB 25 and provide the pro
forma disclosure provisions of SFAS 123 (see Note 12). The Company has not
granted options to non-employees, and therefore no stock based compensation has
been recorded under SFAS 123.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Total advertising expense
was approximately $501,975, $686,704 and $784,830 for 1998, 1997 and 1996,
respectively.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". The company reviews the
carrying value of the intangible assets to determine if facts and circumstances
exist which would suggest that the intangible assets may be impaired or that
the amortization period needs to be modified. If indicators are present which
may indicate impairment is probable, PVH prepares a projection of the
undiscounted cash flows of the associated operations to determine whether the
intangible assets are recoverable based on these undiscounted cash flows. If
impairment is probable, an adjustment is made to reduce the carrying amount of
the intangible assets to their fair value. Fair value is determined using
available market and industry information including revenue, earnings and
multiples, discounted cash flow analyses and comparable public market
valuations.
INSURANCE OPERATIONS
The Company's managed vision care business is conducted primarily through two
wholly-owned subsidiaries which are licensed single service HMOs in the states
of North Carolina and Texas. Each is subject to regulation and supervision by
regulatory authorities of the state in which it operates. The regulatory bodies
have broad administrative powers relating to standards of solvency, minimum
capital and surplus requirements, maintenance of required reserves, payments of
dividends, statutory accounting and reporting practices, and other financial
and operational matters. Each state insurance department
F-37
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
requires that stipulated amounts of paid-in-capital and surplus be maintained
at all times. Dividends generally are limited to the lesser of 10% of
statutory-basis capital and surplus or net income of the preceding year
excluding realized capital gains. At December 31, 1998, the amount of
restricted stockholders' equity is $275,000.
Under agreements with the North Carolina and Texas Departments of Insurance,
the Company is required to pledge investments on behalf of the respective
regulatory bodies. The investments pledged amount to $25,000 and $125,000 in
North Carolina and Texas, respectively.
Reserves for estimated insurance losses, included in accounts payable and
accrued expenses, are determined on a case basis for reported claims, and on
estimates based on company experience for loss adjustment expenses and incurred
but not reported claims. These liabilities give effect to trends in claims
severity and other factors which may vary as the losses are ultimately settled.
The Company's management believes that the estimates of the reserves for losses
and loss adjustment expenses are reasonable; however, there is considerable
variability inherent in the reserve estimates. These estimates are continually
reviewed and, as adjustments to these liabilities become necessary, such
adjustments are reflected in current operations of the period of the
adjustment.
CONCENTRATION OF CREDIT RISK
The Company's principal financial instrument subject to potential concentration
of credit risk is accounts receivable which are unsecured. The Company provides
an allowance for doubtful accounts equal to estimated losses expected to be
incurred in the collection of accounts receivable.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133") which is required to be adopted in years beginning after June 15, 1999.
Because of the Company's minimal use of derivatives, management does not
anticipate the adoption of the new Statement will have a significant effect on
earnings or the financial position of the Company.
RECLASSIFICATIONS
Certain 1997 and 1996 financial statement amounts have been reclassified to
conform current classifications. These reclassifications had no effect on net
loss or shareholders' equity as previously reported.
MANAGED VISION CARE REVENUE RECOGNITION
The Company provides vision care services, through its managed vision care
business, as a preferred provider to HMOs, PPOs, third party administrators,
insurance indemnity programs and large employer groups. The contractual
arrangements with these entities operate under capitated programs, exclusive
and non-exclusive fee-for-services, preferred provider arrangements and other
exclusive arrangements. Capitation payments are accrued when they are due under
the related contracts. Incurred but not reported by patient costs are estimated
and accrued based upon historical experience.
BUYING GROUP AND DISTRIBUTION REVENUE RECOGNITION
The Company's buying group and distribution business sells ophthalmic products
and equipment to 4,000 independent doctor practitioners. The buying group
utilizes a bill-to-ship arrangement with its customers and acts as an
intermediary between the doctor and the product manufacturer. The distribution
center buys eye care products in bulk from manufacturers and resells the
product to individual doctors. Revenue is recognized when the product
manufacturer ships the product to the individual doctor customers.
F-38
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPTOMETRIC PRACTICE MANAGEMENT AND RETAIL OPTICAL REVENUE RECOGNITION
A significant portion of the optometric eye care centers' medical service
revenues are reimbursements received from Medicare, other governmental programs
and insurance companies. These payors reimburse providers based on pre-set fee
schedules. In the ordinary course of business, providers receiving
reimbursement from Medicare and other governmental programs are subject to
review by regulatory agencies concerning the accuracy of billings and
sufficiency of supporting documentation. Revenues are recognized in the period
the services are rendered and recorded at the net recoverable amount. Revenue
and gross accounts receivable are recorded net of any estimated contractual
disallowances dictated by patients' insurers. Such disallowances are generally
immaterial in the optometry practices. All revenues and sales of the optometric
practices are recorded and consolidated by the Company net of doctor
compensation. All non-physician related costs of providing the optometric
services and products are consolidated and expensed by the Company
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Leasehold improvements .................................. $ 2,085,337 $ 2,171,460
Furniture and equipment ................................. 7,395,830 6,899,513
Computer hardware and software .......................... 1,089,835 1,021,247
------------ ------------
10,571,002 10,092,220
Less accumulated depreciation and amortization .......... (6,060,748) (5,267,176)
------------ ------------
$ 4,510,254 $ 4,825,044
============ ============
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Optometric administrative services agreements and goodwill .......... $1,405,665 $1,405,665
Capitalized organization and financing costs ........................ 664,615 644,687
Other ............................................................... 30,661 41,416
---------- ----------
2,100,941 2,091,768
Accumulated amortization ............................................ (744,872) (460,998)
---------- ----------
Intangible assets, net .............................................. $1,356,069 $1,630,770
========== ==========
</TABLE>
The intangible assets relate primarily to the acquisition of the assets of
optometry practices, related administrative services agreements and costs
involved in arranging and obtaining long-term financing. Amortization of the
administrative service agreements and goodwill is provided on a straight-line
basis over a twenty-five year period. Other intangible assets are amortized
over their useful lives ranging from five to ten years. Amortization expense
related to these intangible assets was $283,874, $184,424 and $153,406 during
1998, 1997 and 1996, respectively.
F-39
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CREDIT AGREEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Term note payable to bank in 19 quarterly principal amounts of
$1,200,000 from April, 1999 through July 1, 2001, then increasing to
$2,000,000 or until the obligation is paid in full, through January 1,
2004, with interest payable in quarterly installments at prime plus
1 3/4%, collateralized by substantially all assets of the Company . .......... $ 31,820,910 $ 31,784,910
Revolving credit note to bank, due May 1, 2002, interest payable
quarterly at prime plus 1 3/4%, collateralized by substantially all assets
of the Company (net of unamortized discount of $62,228 at
December 31, 1997). .......................................................... 7,929,940 13,948,176
Promissory notes payable due at various dates between 2001 and 2005.
Interest is payable annually at a rate of 8.25% and the notes are
secured by personal guarantees of the shareholders. .......................... 225,660 225,660
------------ ------------
39,976,510 45,958,746
Less current portion ........................................................... 39,784,074 30,628
------------ ------------
$ 192,436 $ 45,928,118
============ ============
</TABLE>
On July 3, 1996, the Company entered into a loan and security agreement with a
bank. The agreement, as amended on November 25, 1996 and May 30, 1997, made
available to the Company a revolving credit facility permitting advances of up
to $18 million at any one time and term loans in the aggregate principal amount
of $32 million. The terms of this agreement include restrictive covenants
which, among other things, require the Company to maintain specific levels of
net worth, not to exceed maximum leverage and fixed charge coverage ratios, and
not to exceed specified cash flow parameters.
The outstanding borrowings under the revolving loan facility and the term loan
facility are individually and collectively limited to specific available
borrowing base amounts, as defined in the agreement. The interest rate of these
loans can be changed, at the Company's option, from prime plus 1 3/4% to a
Quoted Rate, as defined, plus 3 3/4%. During 1998, the company's average
borrowing rate was 9.95%.
As of December 31, 1998 and currently, the Company is in default of certain
restrictive covenants of the term note payable to bank and the revolving credit
note to bank, as amended. Accordingly, all of the debt has been reclassified to
short-term.
Pursuant to the term note payable and the revolving credit agreement and
amendments, the Company issued the Series A, Series B, Series C and Series D
preferred shareholders warrants entitling the holders the right to purchase
57,506, 57,505, 92,020 and 13,250 shares of common stock, respectively, at a
warrant price of $.01 per share. The estimated fair value of the warrants was
recorded as debt discount with a corresponding credit to additional paid-in
capital. The fair value was determined by using the minimum value model with
the following assumptions: risk free interest rate of 5.5%, no dividend yield
and an expected life of five years. The amortization of the debt discount has
increased the stated interest rate to an effective rate of approximately 10.67%
per annum and is being amortized to interest expense using the interest method
over the terms of the related notes. The Series A, B and C warrants are
exercisable upon issuance and expire on November 25, 2006, January 7, 2007,
April 9, 2007 and June 26, 2008 respectively. As of December 31, 1998, the
warrants had not been exercised.
The promissory notes represent debt issued to certain sellers of optometric
assets in connection with acquisition activities. The acquisition terms include
an earn-out component tied to a percentage of certain future sales of
optometric products. The earn-out component guarantees additional consideration
to the seller if future sales of optometric products exceed a sales threshold.
Such earn-out components expire
F-40
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with the end of the term of the related promissory notes between 2001 and 2005.
During 1998 and 1997, no additional consideration was required to be paid or
accrued in connection with the earn-out component. Management does not expect
payment, if any, of the earn-outs to result in a material adverse affect on the
results of financial position of the Company.
The following represents maturities of long-term debt by year and in the
aggregate:
<TABLE>
<S> <C>
1999 ......................... $39,784,074
2000 ......................... 36,041
2001 ......................... 27,097
2002 ......................... 29,333
2003 ......................... 31,753
Thereafter ................... 68,212
-----------
$39,976,510
===========
</TABLE>
At December 31, 1998 and 1997, the Company was a guarantor of debt of related
parties in the amount of $298,530 and $327,005, respectively.
At December 31, 1998 and 1997, the Company had standby letters of credit
outstanding in the amount of $600,000 and $608,000, respectively.
The Company has concluded that it is not practicable to estimate the fair value
of its bank debt. Because of the Company's financial position as outlined in
Note 2, it is highly unlikely that similar debt could be obtained currently.
Therefore, while the fair value of the debt can be assumed to be lower than its
carrying amount, it is not practicable to estimate the fair value.
9. LEASES
The Company leases certain furniture, machinery and equipment under capital
lease agreements that expire through 2003. The Company primarily leases its
facilities under cancelable and noncancelable operating leases expiring in
various years through 2011. Several facility leases have annual rental terms
comprised of base rent at the inception of the lease adjusted annually by a
contingent amount based, in part, upon the increase in the consumer price
index. Also, certain facility leases contain provisions which provide for
additional contingent rents based on a stated percentage of sales. Rent expense
charged to operations during the years ended December 31, 1998, 1997 and 1996
was $2,302,269, $2,193,038 and $1,907,746 of which $132,132, $109,355 and
$159,295, respectively, represent contingent rent expense.
Property and equipment includes the following amounts for capital leases at
December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Furniture, machinery and equipment .......... $ 1,356,412 $1,211,116
Less accumulated amortization ............... (1,057,007) (980,937)
------------ ----------
$ 299,405 $ 230,179
============ ==========
</TABLE>
Capital lease obligations of $219,070 and $614,056 were incurred for
acquisition of new equipment in 1998 and 1997, respectively. Amortization of
capital leases is included in depreciation and amortization expense.
F-41
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments, by year and in the aggregate, under capital
leases and operating leases with remaining terms of one year or more consisted
of the following at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -------------
<S> <C> <C>
1999 .................................. $ 139,504 $1,524,414
2000 .................................. 102,668 1,362,108
2001 .................................. 47,557 1,103,340
2002 .................................. 43,031 696,887
2003 .................................. 19,102 681,828
2004 and thereafter ................... 0 1,976,286
--------- ----------
Total minimum lease payments .......... 351,862 $7,344,863
==========
Amounts representing interest ......... (58,160)
---------
$ 293,702
=========
</TABLE>
10. 401(K) SAVINGS PLAN
The Company has a 401(k) Plan and Trust covering substantially all employees
who meet certain age and employment criteria. Contributions are made on a
discretionary basis as authorized by the Board of Directors. Employer
contributions for the years ended December 31, 1998, 1997 and 1996 were
$576,770, $531,666 and $198,310 respectively. Plan administrative expenses paid
by the Company for the years ended December 31, 1998, 1997 and 1996 were
$52,829, $35,069 and $8,846, respectively.
11. RELATED PARTY TRANSACTIONS
The Company incurred rent expense and other fees of approximately $122,889,
$120,064 and $114,995 in 1998, 1997 and 1996, respectively, which was paid to
certain employee doctors for the use of equipment.
The Company incurred rent expense of approximately $450,074, $347,413 and
$831,000 in 1998, 1997 and 1996, respectively, which was paid to entities under
common ownership, primarily for the lease of facilities.
The Company has various notes receivable from related parties with interest
rates ranging from prime plus 1% to 9%, maturing from 1999 through 2006. The
total balance due under these notes receivable was $214,638 and $180,597 at
December 31, 1998 and 1997, respectively, of which $39,132 and $21,570 has been
reflected as a current asset.
The Company has a note payable to a related party with an interest rate of 6%
maturing in 2024. The total balance due, including accrued interest, on this
note payable was $451,916 and $363,431 at December 31, 1998 and 1997,
respectively.
12. SHAREHOLDERS' EQUITY
MANDATORILY REDEEMABLE PREFERRED STOCK
In June of 1998, the Company issued 8,000 shares of redeemable, 8% cumulative
preferred stock, together with a stock purchase warrant enabling the holder to
purchase 1,333,333 shares of the Company's common stock, for $8.0 million.
Under the terms of the agreement, the preferred stockholders are entitled to
receive a guaranteed annual rate of return of 30% over the first four years of
the agreement. Accordingly, the company has recorded accrued dividends of
$1,200,000 or $150 per share as of December 31, 1998. No dividends have been
paid. The number of shares purchasable and the initial exercise price of the
stock purchase warrant of $6.50 per share are subject to adjustment in order
for the preferred stockholder to
F-42
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
achieve the guaranteed rate of return. The preferred stock agreement also
contains restrictive financial covenants which the company has violated as of
December 31, 1998. As a result of the violations, the preferred stockholder has
the right to redeem the preferred stock as of December 31, 1998.
The holder of the mandatorily redeemable preferred stock has full voting rights
and powers and is entitled to one vote for each share held.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holder of the mandatorily redeemable preferred
stock is entitled to receive payment out of assets of the Company in an amount
equal to $1,000 per share, plus any accumulated and unpaid dividends. If the
assets of the Company available for distribution are insufficient to make the
payment required in full, such assets shall be distributed pro-rata among the
holders of the mandatorily redeemable preferred stock based on the aggregate
liquidation preferences of the shares held by each holder. If the assets of the
Company available for distribution to the holders of the mandatorily redeemable
preferred stock exceed the distribution required, such excess assets shall be
distributed pro-rata to the holders of common stock.
The estimated fair value of the stock purchase warrant was $1,293,333 at the
date of issuance in June 1998. This value was determined using the
Black-Scholes pricing model with the following assumptions: risk free interest
rate of 4.67%, no dividend yield, volatility factor of .7604 and an expected
life of five years. Initially, this value was recorded as a discount to the
redeemable preferred stock balance with a corresponding credit to additional
paid-in capital. This discount was to be amortized through charges to retained
earnings over the initial redemption period of the preferred stock, seven
years. However, in light of the Company's violation of financial covenants in
the preferred stock agreement and the corresponding acceleration of the
redemption period, the remaining unamortized balance of the warrant discount
was fully amortized at December 31, 1998. The warrant expires in June 2005.
STOCK AWARDS
During 1995, the Company granted 44,133 shares of restricted common stock to
certain key employees. Upon issuance, deferred compensation equivalent to the
market value at the date of grant was charged to shareholders' equity and
amortized as compensation expense over the period which the restrictions lapse.
In connection with the merger with PVG on June 3, 1996, the restrictions on the
common stock lapsed when they were exchanged for preferred stock, therefore the
remaining balance of the deferred compensation was recognized as compensation
expense in 1996.
STOCK OPTION PLAN
A summary of the Company's stock option plan activity follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE PER SHARE
------------------------------- ----------------------------------
AVAILABLE FOR OPTIONS
GRANT OUTSTANDING RANGE TOTAL
--------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
January 1, 1996
Reserved ................ 1,700,000
Granted ................... (218,000) 218,000 $1.50 - $ 5.00 $ 583,400
--------- ------- ---------------- ------------
December 31, 1996 ......... 1,482,000 218,000 $1.50 - $ 5.00 583,400
Granted ................... (551,000) 551,000 $2.00 - $20.00 9,530,000
Canceled .................. 1,500 (1,500) (22,500)
--------- ------- ---------------- ------------
December 31, 1997 ......... 932,500 767,500 $1.50 - $20.00 10,090,900
Granted ................... (9,500) 9,500 $2.00 - $20.00 70,000
Canceled .................. 124,145 (124,145) (2,183,175)
--------- -------- ---------------- ------------
December 31, 1998 ......... 1,047,145 652,855 $1.50 - $20.00 $ 7,977,725
--------- -------- ---------------- ------------
</TABLE>
F-43
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's executive stock plan, approved by the Board of Directors in 1996,
provides for the granting of nonqualified incentive stock options. Grant prices
are determined by the Board of Directors. Options may be exercised for 10 years
after grant and become exercisable on the date of grant. In 1996, the Company
issued 218,000 options that became 100% vested and exercisable at the date of
grant. In 1997, the Company issued 551,000 options that vest ratably over 3
years and are exercisable after certain vesting criteria is met. The number of
options exercisable at December 31, 1998, 1997 and 1996 were 363,488, 218,000
and 218,000, respectively. The weighted average exercisable price of
outstanding options at December 31, 1998 is $12.22.
Pro forma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company accounted for its employee stock
options granted subsequent to December 31, 1995, under the fair value method of
SFAS 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ --------
<S> <C> <C>
Risk free interest rate .......... 4.67% 5.50%
Dividends ........................ -- --
Volatility factor ................ .7604 .6321
Expected Life .................... 8.27 years 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net loss as presented ......... $38,090,067 $1,405,261 $2,204,177
Pro forma net loss ............ $38,110,028 $1,415,124 $2,568,497
</TABLE>
The following table summarizes in more detail information regarding the
Company's stock options outstanding at December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL OPTIONS
EXERCISE PRICE O/S OPTIONS LIFE EXERCISABLE
- ------------------ ------------- ------------- ------------
<S> <C> <C> <C>
$1.50 ............ 118,000 7.08 118,000
$2 to $6 ......... 37,500 9.15 10,000
$3.00 ............ 30,000 7.92 30,000
$4.04 ............ 35,000 7.75 35,000
$5.00 ............ 35,000 7.84 35,000
$15.00 ........... 140,555 8.02 50,555
$20.00 ........... 256,800 9.00 84,933
------- -------
652,855 363,488
======= =======
</TABLE>
F-44
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESERVED SHARES
At December 31, 1998, the Company had reserved a total 3,334,497 of its
authorized 15,000,000 shares of common stock for future issuance as follows:
<TABLE>
<S> <C>
Outstanding practice acquisition stock ......... 80,883
Stock options .................................. 1,700,000
Warrants ....................................... 1,553,614
---------
Total shares reserved .......................... 3,334,497
=========
</TABLE>
LOSS PER SHARE
The Company presents per share information in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Due
to the net losses from continuing operations for each of the three years
presented, potential common shares are considered antidilutive and therefore
there are no differences between basic and diluted earnings per share.
The following table sets forth the computation of earnings per share for the
years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Loss from continuing operations applicable to
common shareholders:
Loss from continuing operations .................... $ (3,238,655) $ (2,033,634) $ (766,713)
Accretion of redemption value of preferred stock
and preferred stock dividends .................... (2,493,333) -- --
------------- ------------- ------------
Loss from continuing operations applicable to
common shareholders ................................ $ (5,731,988) $ (2,033,634) $ (766,713)
============= ============= ============
Net loss applicable to common shareholders:
Net loss ........................................... $ (38,090,067) $ (1,405,261) $ (2,204,177)
Accretion of redemption value of preferred stock
and preferred stock dividends .................... (2,493,333) -- --
------------- ------------- ------------
Net loss applicable to common shareholders ......... $ (40,583,400) $ (1,405,261) $ (2,204,177)
============= ============= ============
Loss per common share:
Loss from continuing operations .................... $ (0.80) $ (0.34) $ (0.35)
============= ============= ============
Net loss per share ................................. $ (5.64) $ (0.24) $ (1.00)
============= ============= ============
Weighted average shares outstanding ................ 7,190,762 5,914,374 2,209,839
============= ============= ============
</TABLE>
F-45
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities consisted of the following
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Cash to accrual adjustment ................... $ 1,604,167 $ 563,510
Other ........................................ 16,726 17,688
------------ -----------
Total current deferred tax liabilities ........ 1,620,443 581,198
ASAs basis difference ........................ -- 21,331,613
Fixed assets basis difference ................ -- 4,120,202
Cash to accrual adjustment ................... -- 1,690,529
Other ........................................ 2,055 --
------------ -----------
Total noncurrent deferred tax liabilities ..... 2,055 27,142,344
------------ -----------
Total deferred tax liabilities ................ $ 1,622,498 $27,723,542
============ ===========
Deferred tax assets:
Net operating loss carryforwards ............. $ -- $ 8,534
Discontinued operations ...................... 4,078,084 --
Accruals ..................................... 711,826 368,951
Allowance for bad debts ...................... 163,346 142,755
Other ........................................ 15,540 25,034
------------ -----------
Total current deferred tax assets ............. 4,968,796 545,274
Depreciation and amortization ................ 622,906 293,918
Other ........................................ 36,862 50,804
------------ -----------
Total noncurrent deferred tax asset ........... 659,768 344,722
Valuation allowance ........................... (4,006,066) --
------------ -----------
Total deferred tax assets ..................... $ (1,622,498) $ 889,996
============ ===========
</TABLE>
The components of income tax benefit (expense) for 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal ................................... $ (141,064) $ -- $ --
State ..................................... (19,757) -- --
---------- ---------- --------
Total current .............................. (160,821) -- --
Deferred:
Federal ................................... (256,535) 984,495 194,595
State ..................................... (16,160) 50,500 9,982
---------- ---------- --------
Total deferred ............................. (272,695) 1,034,995 204,577
---------- ---------- --------
Total income tax benefit (expense) ......... $ (433,516) $1,034,995 $204,577
========== ========== ========
</TABLE>
F-46
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the tax provision at the U.S. Statutory Rate to the
effective income tax rate as reported is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Tax provision at U.S. Statutory Rate ................ 34.0% 34.0% 34.0%
State income taxes, net of federal benefit .......... 3.0% 3.0% 3.0%
Non-deductible expenses ............................. (4.3%) (11.3%) (35.6%)
Change in valuation allowance ....................... (48.2%) 8.0% 19.7%
----- ----- -----
Effective income tax expense rate ................... (15.5%) 33.7% 21.1%
===== ===== =====
</TABLE>
14. SUBSEQUENT EVENTS -- MERGER AGREEMENT
In April 1999, the Company entered into a definitive Merger Agreement with
Saratoga Resources, Inc. and its subsidiaries ("Saratoga") and OptiCare Eye
Health Centers, Inc. ("OptiCare") whereby Company shareholders will receive
approximately 48.755% of the common stock of Saratoga, a publicly traded
company and OptiCare shareholders will receive approximately 48.745% of the
common stock of Saratoga (the "Merger"). The Merger is subject to a number of
conditions including but not limited to shareholder approval by each party and
amendment to the Company's credit facility.
In conjunction with the Merger, the Company will enter into long-term Health
Services Organization ("HSO") service agreements with a number of ophthalmology
practices. In addition to buying group and managed care access, the HSO
agreements provide the physician with a standardized marketing program.
15. COMMITMENT AND CONTINGENCIES
In December 1996, the Company acquired a 51% ownership interest in a managed
care contracting entity. In connection with this agreement, the Company is
obligated to acquire an additional 24% of the outstanding common stock of this
entity on December 20, 1999. Consideration for the additional shares is to be
paid in cash based upon a formula equal to the product of multiplying the gross
managed care revenues, as defined in the agreement, for the twelve preceding
calendar months immediately preceding the calendar month that includes November
1999 by 10% and multiplying the product by a factor of six. This additional
investment will be recorded when the purchase price is no longer contingent and
when the risks and rewards of ownership of the additional shares convey to the
Company. This additional investment will be recorded as an additional element
of the cost of the investment in the managed care contracting entity.
In connection with an Administrative Service Agreement ("ASA") consummated in
1997 between the Company and an ophthalmologist, the company also entered into
a related agreement which granted the ophthalmologist the right, between the
second and fourth anniversary of the ASA, to require the Company to locate a
third party to purchase all of the outstanding shares of the ophthalmologist's
practice for at least $4.0 million in either cash or stock, at the option of
the ophthalmologist.
During 1997, the Company entered into a revolving credit and term loan
agreement with a third party whereby the Company has established, as the
lender, a revolving line of credit not to exceed $1.0 million and a term loan
agreement not to exceed $4.0 million. Borrowings under both credit instruments
can only occur if the borrower is in compliance with stated financial
covenants. Borrowings under the revolving credit agreement can commence on
December 1, 1997 and are initially limited to $500,000. The remaining $500,000
will be made available to the borrower after the borrower has received at least
$2,000,000 in new equity funding, as defined. Any funding under the term loan
agreement requires approval of the Company's Board of Directors. The Company's
commitment to provide any funding under both of these agreements expires on
October 1, 1999. Outstanding borrowings shall accrue interest at the prime rate
of the Company's commercial lender, plus 1 3/4% and are payable in eleven equal
quarterly installments. Any borrowings shall be secured by a) valid perfected
first-priority security interest, as described and b) a guaranty by an
affiliate of the borrower. No funding has been provided under either agreement.
F-47
<PAGE>
PRIME VISION HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
On April 9, 1999, a settlement agreement was signed between the Company and two
Shareholders providing, among other items, for payment to the Shareholders in
an amount of $2.5 million, a shareholding position of 32% of the Company before
the close of the Merger discussed above, and a new administrative services
agreement between the Company and OECC to be executed in conjunction with the
closing of the Merger. The legal action filed against the Company that charged
the existing ASA agreement between the parties had been breached was dismissed.
This settlement agreement becomes effective with closing of the Merger.
The Company is a party to several lawsuits where they have sued or counter-sued
for alleged breach of the administrative service agreements or the non-compete
agreements. The lawsuits pertain to the ophthalmology segment which
discontinued operations during 1998. Although there can be no assurance as to
the ultimate disposition of these matters and proceedings, it is the opinion of
the Company's management that matters will be substantially resolved by
September 30, 1999. Based on current negotiations, management anticipates that
the outcome, individually or in aggregate, will not have a further material
adverse effect on the results of operations and financial condition of the
Company.
F-48
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 640,781 $ 938,927
Accounts receivable, net .......................................... 6,749,252 6,349,548
Inventory ......................................................... 1,797,964 1,717,964
Prepaid expenses and other assets ................................. 961,984 584,098
Deferred income taxes ............................................. 443,809 467,009
Income taxes receivable ........................................... 46,835 22,236
Advances to related parties ....................................... 128,739 117,951
------------ ------------
Total current assets ............................................. 10,769,364 10,197,733
PROPERTY AND EQUIPMENT, NET ........................................ 6,049,804 5,766,167
DEFERRED INCOME TAXES .............................................. 92,007 73,007
INTANGIBLE ASSETS, NET ............................................. 3,262,748 3,301,744
OTHER ASSETS ....................................................... 174,474 176,266
------------ ------------
TOTAL ............................................................ $ 20,348,397 $ 19,514,917
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................. $ 1,570,208 $ 1,905,745
Accrued expenses .................................................. 1,573,233 1,384,638
Managed care claims ............................................... 1,935,422 1,405,644
Current maturities of long-term debt .............................. 2,746,052 2,183,826
------------ ------------
Total current liabilities ........................................ 7,824,915 6,879,853
------------ ------------
NONCURRENT LIABILITIES--Long-term debt ............................. 1,041,987 1,135,462
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A convertible preferred stock (OptiCare) authorized 160,000
shares; issued and outstanding 152,754 shares in 1999 and 1998, par
value $.01 (liquidation value of $93.68 per share)................. 1,527 1,527
Class B convertible preferred stock (OptiCare) authorized 640,000
shares; issued and outstanding 220,824 shares in 1999 and 1998, par
value $.01 (liquidation value of $93.68 per share)................. 2,208 2,208
Common stock (OptiCare)--authorized 1,200,000 shares; none issued,
$.01 par value..................................................... -- --
Common stock (OptiCare, P.C.)--authorized 100 shares; issued and
outstanding 100 shares in 1999 and 1998, no par value ............. -- --
Additional paid-in capital (OptiCare) .............................. 12,942,190 12,942,190
Additional paid-in capital (OptiCare, P.C.) ........................ 1,000 1,000
Retained earnings (deficit) ........................................ (1,465,430) (1,447,323)
------------ ------------
Total shareholders' equity ....................................... 11,481,495 11,499,602
------------ ------------
TOTAL .............................................................. $ 20,348,397 $ 19,514,917
============ ============
</TABLE>
See notes to combined financial statements.
F-49
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
1999 1998
-------------- --------------
<S> <C> <C>
NET PATIENT REVENUE ..................... $ 8,383,301 $ 6,895,388
NET MANAGED CARE REVENUE ................ 2,672,663 835,774
----------- -----------
TOTAL NET REVENUE ....................... 11,055,964 7,731,162
----------- -----------
OPERATING EXPENSES:
Staff compensation ..................... 3,422,577 2,624,301
Physician compensation ................. 2,235,708 2,050,373
Surgical and eyecare supplies .......... 1,362,561 993,048
General and administrative ............. 1,067,024 772,270
Facility rental ........................ 672,077 546,931
Managed care claims .................... 1,679,265 496,250
Depreciation and amortization .......... 382,800 255,000
Marketing .............................. 218,306 124,046
----------- -----------
Total operating expenses .............. 11,040,318 7,862,219
----------- -----------
OPERATING INCOME (LOSS) ................. 15,646 (131,057)
INTEREST INCOME (EXPENSE):
Interest income ........................ 8,893 47,561
Interest expense ....................... (56,796) (4,405)
----------- -----------
Net interest income (expense) ......... (47,903) 43,156
----------- -----------
LOSS BEFORE INCOME TAXES ................ (32,257) (87,901)
INCOME TAX BENEFIT ...................... (14,150) (35,540)
----------- -----------
NET LOSS ................................ $ (18,107) $ (52,361)
=========== ===========
</TABLE>
See notes to combined financial statements.
F-50
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ $ (18,107) $ (52,361)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization .................................. 382,800 255,000
Deferred income tax provision (benefit) ........................ 4,200 (86,300)
Changes in operating assets and liabilities:
Accounts receivable, net ...................................... (399,704) (976,099)
Inventory ..................................................... (80,000) (164,000)
Prepaid expenses and other assets ............................. (402,485) (347,749)
Advances to related parties ................................... (10,788) (11,474)
Other noncurrent assets ....................................... (3,012) (19,292)
Accounts payable and other liabilities ........................ (335,537) 513,028
Accrued expenses .............................................. 188,595 (302,567)
Managed care claims ........................................... 529,778 295,961
---------- ------------
Net cash used in operating activities ........................ (144,260) (895,853)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................. (622,637) (676,186)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ............................ (131,249) --
Borrowings under line of credit ................................. 600,000 27,500
---------- ------------
Net cash provided by financing activities .................... 468,751 27,500
---------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................ (298,146) (1,544,539)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................... 938,927 4,901,666
---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................... $ 640,781 $ 3,357,127
========== ============
SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest ....................................................... $ 55,990 $ 4,406
========== ============
Income taxes ................................................... $ 6,250 $ 90,000
========== ============
</TABLE>
See notes to combined financial statements.
F-51
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED MARCH 31, 1999 AND 1998
1. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of Opticare Eye
Health Centers Inc. ("OptiCare") and OptiCare, P.C. (collectively "the
Company") for the first quarter ended March 31, 1999 and 1998 have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation of the
combined financial statements have been included. The accompanying combined
financial statements should be read in conjunction with the combined financial
statements and footnotes for the year ended December 31, 1998. The results of
operations for the three month period ended March 31, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
2. REVOLVING CREDIT AGREEMENT
In September 1997, the Company entered into a $3,000,000 unsecured
revolving line of credit agreement with a bank for the purpose of providing
working capital and financing acquisitions. The agreement matures on June 30,
1999 and bears interest, at the Company's option, at Prime or LIBOR plus 1.50%,
with a 0.25% annual commitment fee charged on the unused balance of the
facility. At March 31, 1999, the Company had advances of $2,400,000 outstanding
under this line of credit and was in compliance with the restrictive covenants
under the line of credit agreement.
3. SUBSEQUENT EVENTS
On April 12, 1999 the Company entered into a Agreement and Plan of Merger
with PrimeVision Health, Inc. and Saratoga Resources, Inc. whereby the Company
will become a wholly-owned subsidiary of Saratoga Resources, Inc., and the
Company's shareholders will have ownership in Saratoga Resources, Inc.,
representing 48.745% of the combined company. This transaction is subject to
regulatory approval and is intended to be accounted for under the purchase
method of accounting with the excess of purchase price over the fair value of
net assets acquired being recorded as goodwill.
In April 1999, the Company signed a letter of intent to purchase managed
care contracts from Eye Health Network, a wholly owned subsidiary of Omega
Health Systems, Inc.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
OptiCare Eye Health Centers, Inc. and Affiliate
We have audited the accompanying combined balance sheets of OptiCare Eye
Health Centers, Inc. (OptiCare) and OptiCare, P.C. (an affiliated corporation),
which is under common ownership and common management (collectively, the
"Company"), as of December 31, 1998 and 1997, and the related combined
statements of operations, shareholders' equity and of cash flows for each of
the three years in the period ended December 31, 1998. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of OptiCare and OptiCare,
P.C., as of December 31, 1998 and 1997, and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
March 26, 1999
F-53
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED BALANCE SHEETS--DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
ASSETS --------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 938,927 $ 4,901,666
Accounts receivable, net (Note 1) .......................... 6,349,548 4,505,077
Inventory (Note 3) ......................................... 1,717,964 1,067,535
Prepaid expenses and other assets .......................... 584,098 323,665
Deferred income taxes (Note 10) ............................ 467,009 --
Income taxes receivable .................................... 22,236 --
Advances to related parties (Note 12) ...................... 117,951 129,137
------------ -----------
Total current assets ..................................... 10,197,733 10,927,080
PROPERTY AND EQUIPMENT, NET (Note 4) ........................ 5,766,167 3,433,772
DEFERRED INCOME TAXES (Note 10) ............................. 73,007 162,976
INTANGIBLE ASSETS, NET (Note 5) ............................. 3,301,744 262,130
OTHER ASSETS ................................................ 176,266 263,070
------------ -----------
TOTAL ....................................................... $ 19,514,917 $15,049,028
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 1,905,745 $ 995,859
Accrued expenses (Note 6) .................................. 1,384,638 1,378,587
Managed care claims (Note 1) ............................... 1,405,644 427,757
Deferred income taxes (Note 10) ............................ -- 66,760
Current maturities of long-term debt (Note 7) .............. 2,183,826 59,559
------------ -----------
Total current liabilities ................................ 6,879,853 2,928,522
------------ -----------
NONCURRENT LIABILITIES:
Long-term debt (Note 7) .................................... 1,135,462 168,516
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 14)
SHAREHOLDERS' EQUITY (Note 9):
Class A convertible preferred stock (OptiCare) authorized
160,000 shares; issued and outstanding 152,754 shares in
1998 and 1997, par value $.01 (liquidation value of $93.68
per share) ............................................... 1,527 1,527
Class B convertible preferred stock (OptiCare) authorized
640,000 shares; issued and outstanding 220,824 and 220,424
shares in 1998 and 1997, respectively, par value $.01
(liquidation value of $93.68 per share)................... 2,208 2,204
Common stock (OptiCare)--authorized 1,200,000 shares; none
issued, $.01 par value.................................... -- --
Common stock (OptiCare, P.C.)--authorized 100 shares;
issued and outstanding 100 shares in 1998 and 1997, no par
value .................................................... -- --
Additional paid-in capital (OptiCare) ...................... 12,942,190 12,892,194
Additional paid-in capital (OptiCare, P.C.) ................ 1,000 1,000
Retained earnings (deficit) ................................ (1,447,323) (944,935)
------------ -----------
Total shareholders' equity ............................... 11,499,602 11,951,990
------------ -----------
TOTAL ....................................................... $ 19,514,917 $15,049,028
============ ===========
</TABLE>
See notes to combined financial statements.
F-54
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
NET PATIENT REVENUE ............................... $29,616,913 $25,274,021 $23,694,164
NET MANAGED CARE REVENUE .......................... 5,127,716 1,968,230 1,026,083
----------- ----------- -----------
TOTAL NET REVENUE ................................. 34,744,629 27,242,251 24,720,247
----------- ----------- -----------
OPERATING EXPENSES:
Staff compensation ............................... 11,579,083 8,450,861 7,154,733
Physician compensation ........................... 8,599,689 8,200,965 7,751,549
Surgical and eyecare supplies .................... 4,401,250 3,066,694 2,734,154
General and administrative ....................... 3,587,533 2,824,863 2,979,691
Facility rental (Note 12) ........................ 2,422,494 1,957,593 1,876,406
Managed care claims (Note 1) ..................... 3,063,902 1,087,964 748,431
Depreciation and amortization .................... 1,063,074 644,683 547,280
Marketing ........................................ 968,346 620,266 634,472
----------- ----------- -----------
Total operating expenses ....................... 35,685,371 26,853,889 24,426,716
----------- ----------- -----------
OPERATING INCOME (LOSS) ........................... (940,742) 388,362 293,531
INTEREST INCOME (EXPENSE):
Interest income .................................. 133,775 75,506 7,525
Interest expense ................................. (60,298) (4,551) --
----------- ----------- -----------
Net interest income ............................ 73,477 70,955 7,525
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ................. (867,265) 459,317 301,056
INCOME TAX PROVISION (BENEFIT) (Note 10) .......... (364,877) 132,600 158,252
----------- ----------- -----------
NET INCOME (LOSS) ................................. $ (502,388) $ 326,717 $ 142,804
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-55
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
OPTICARE OPTICARE OPTICARE
CLASS A CLASS B COMMON
PREFERRED PREFERRED STOCK
STOCK STOCK ---------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 ................ $ -- $ -- $ 2,595,000
Exercise of warrants (Note 9) ............ -- -- 647,815
Net income ............................... -- -- --
------ ------ -------------
BALANCE, DECEMBER 31, 1996 ................ -- -- 3,242,815
Recapitalization in October 1997
(Note 9) ................................ 887 2,193 (3,242,753)
Sale of shares in October 1997 (Note 9)... 640 -- --
Repurchase of shares (Note 9) ............ -- -- (62)
Shares issued in connection with
Practice Acquisitions in December
1997 (Note 2) ........................... -- 11 --
Net income ............................... -- -- --
------ ------ -------------
BALANCE, DECEMBER 31, 1997 ................ 1,527 2,204 --
Shares issued in connection with
Practice Acquisitions in 1998 (Note 2)... 4
Net loss ................................. -- -- --
------ ------ -------------
BALANCE, DECEMBER 31, 1998 ................ $1,527 $2,208 $ --
====== ====== =============
<CAPTION>
OPTICARE OPTICARE P.C.
ADDITIONAL ADDITIONAL RETAINED
PAID-IN PAID-IN EARNINGS
CAPITAL CAPITAL (DEFICIT) TOTAL
-------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 ................ $ 3,301,131 $1,000 $ (1,414,456) $ 4,482,675
Exercise of warrants (Note 9) ............ 1,012,185 -- -- 1,660,000
Net income ............................... -- -- 142,804 142,804
----------- ------ ------------ -----------
BALANCE, DECEMBER 31, 1996 ................ 4,313,316 1,000 (1,271,652) 6,285,479
Recapitalization in October 1997
(Note 9) ................................ 3,239,673 -- -- --
Sale of shares in October 1997 (Note 9)... 5,783,498 -- -- 5,784,138
Repurchase of shares (Note 9) ............ (586,749) -- -- (586,811)
Shares issued in connection with
Practice Acquisitions in December
1997 (Note 2) ........................... 142,456 -- -- 142,467
Net income ............................... -- -- 326,717 326,717
----------- ------ ------------ -----------
BALANCE, DECEMBER 31, 1997 ................ 12,892,194 1,000 (944,935) 11,951,990
Shares issued in connection with
Practice Acquisitions in 1998 (Note 2)... 49,996 50,000
Net loss ................................. -- -- (502,388) (502,388)
----------- ------ ------------ -----------
BALANCE, DECEMBER 31, 1998 ................ $12,942,190 $1,000 $ (1,447,323) $11,499,602
=========== ====== ============ ===========
</TABLE>
See notes to combined financial statements.
F-56
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ (502,388) $ 326,717 $ 142,804
Adjustments to reconcile net income (loss) to net cash used in
operations:
Depreciation and amortization .............................. 1,063,074 644,683 547,280
Deferred income taxes ...................................... (443,800) (299,724) (200,090)
(Gain) loss on disposal of fixed assets .................... -- (3,900) 6,321
Changes in operating assets and liabilities:
Accounts receivable, net .................................. (1,794,471) (944,865) (347,183)
Inventory ................................................. (250,475) (157,572) (91,510)
Prepaid expenses and other assets ......................... (260,433) (185,655) 15,308
Advances to related parties ............................... 11,186 (60,067) 40,823
Other noncurrent assets ................................... 19,521 (114,001) 17,766
Accounts payable and other liabilities .................... 648,134 119,004 (321,499)
Accrued expenses .......................................... 6,051 87,808 27,329
Managed care claims ....................................... 977,887 427,757 --
Income taxes payable ...................................... -- (190,096) 160,342
------------ ------------ ----------
Net cash used in operating activities ................... (525,714) (349,911) (2,309)
------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .......................... (2,622,856) (1,501,185) (986,640)
Proceeds from sale of fixed assets ........................... -- 3,900 16,156
Practice acquisitions ........................................ (2,554,610) (108,680) --
------------ ------------ ----------
Net cash used in investing activities ................... (5,177,466) (1,605,965) (970,484)
------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ......................... (59,559) (14,364) (252,936)
Borrowings under line of credit .............................. 1,800,000 --
Net proceeds from issuance of stock .......................... -- 5,784,138 1,660,000
Cash used to repurchase stock ................................ -- (586,811) --
------------ ------------ ----------
Net cash provided by financing activities ............... 1,740,441 5,182,963 1,407,064
------------ ------------ ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS .................................................. (3,962,739) 3,227,087 434,271
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR ......................................................... 4,901,666 1,674,579 1,240,308
------------ ------------ ----------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................ $ 938,927 $ 4,901,666 $1,674,579
============ ============ ==========
SUPPLEMENTAL INFORMATION :
Cash paid for:
Interest ................................................... $ 29,531 $ 4,802 $ 13,807
============ ============ ==========
Income taxes ............................................... $ 130,550 $ 622,974 $ 185,000
============ ============ ==========
</TABLE>
See notes to combined financial statements.
F-57
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Busines
OptiCare Eye Health Centers, Inc. ("OptiCare") and OptiCare, P.C.
(collectively, the "Company") operate in the eye health business providing
general eye care, optical services, outpatient ophthalmic surgery, consultative
services for complicated eye diseases and a managed care network throughout
Connecticut. OptiCare owns and operates the retail eyeglass and eyeglass
manufacturing business and the related assets. OptiCare P.C., was established
for the purpose of rendering ophthalmology and optometry services exclusively
for OptiCare. OptiCare, P.C. entered into a Professional Services and Support
Agreement with OptiCare effective December 1, 1995.
Basis of Presentation
The accompanying combined financial statements include the accounts of OptiCare
and OptiCare, P.C. Due to the related business activities, common management
control and the interdependence of the affiliated entities, combined financial
statements are presented because they are more meaningful. All significant
intercompany accounts and transactions have been eliminated in the combined
financial statements.
Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing financial statements, management
is required to make estimates and assumptions, particularly in determining the
adequacy of the allowance for doubtful accounts, insurance disallowances and
managed care claims accrual, that affect the reported amounts of assets and
liabilities as of the balance sheet date and results of operations for the
year. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments purchased with an original maturity of three
months or less to be cash equivalents.
Receivables
Receivables are stated net of allowances for doubtful accounts, contractual
allowances and insurance disallowances which aggregated $2,196,615 and
$1,544,543 as of December 31, 1998 and 1997, respectively.
Inventories
Inventories are valued at the lower of cost or market, determined on the
first-in, first-out (FIFO) basis.
Intangible Assets
The Company uses the straight-line method to amortize intangible assets over
their estimated useful lives which range from 5 to 20 years. The Company's
management periodically evaluates the carrying value of its intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Recoverability is based on
estimated future undiscounted cash flows from the use and ultimate disposition
of the asset.
Property and Equipment
Property and equipment consists of furniture, fixtures, equipment, leasehold
improvements and a vehicle and are recorded at cost. Leasehold improvements are
being amortized over the term of the lease or the life of the improvement,
whichever is shorter. Depreciation and amortization are provided primarily
using the straight-line method over the estimated useful lives of the
respective assets as follows:
F-58
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
CLASSIFICATION ESTIMATED USEFUL LIFE
- ------------------------------------------------------- ----------------------
<S> <C>
Furniture, fixtures and equipment .......... 5--7 years
Leasehold improvements ..................... 3--20 years
Vehicle .................................... 5 years
</TABLE>
Stock-based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations. Accordingly, compensation cost for the stock options included
under the Company's 1997 Stock Option Plan is measured as the excess, if any,
of the fair value of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
the disclosure of fair value information for certain assets and liabilities,
whether or not recorded in the balance sheet, for which it is practicable to
estimate that value. The Company has the following financial instruments: cash
and cash equivalents, receivables, accounts payable, accrued liabilities and
long-term debt. The Company considers the carrying amount of these items,
excluding long-term debt, to approximate their fair values because of the short
period of time between the origination of such instruments and their expected
realization. Refer to Note 7 for fair value disclosures of long-term debt.
Net Patient Revenue
The Company has agreements with third-party payors that provide for payments to
the Company at amounts different from its established rates. Net patient
revenue is reported at the estimated net realizable amounts from patients,
third-party payors, and others for services rendered.
Net Managed Care Revenue
Revenue is derived from monthly capitation payments from health benefits payors
which contract with the Company for the delivery of eye care services. The
Company records this revenue at contractually agreed-upon rates during the
period in which the Company is obligated to provide services to members.
Managed Care Claims Expense
Claims expense is recorded as provider services are rendered and includes an
estimate for claims incurred but not reported.
Malpractice Claims
The Company purchases insurance to cover medical malpractice claims. There are
known claims and incidents as well as potential claims from unknown incidents
that may be asserted from past services provided. Management believes that
these claims, if asserted, would be settled within the limits of insurance
coverage.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which requires an
asset and liability method of accounting for
F-59
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
deferred income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis using enacted
tax rates expected to apply to taxable income in the years the temporary
differences are expected to reverse.
Reclassification
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
2. ACQUISITIONS
The Company acquired seven optometric medical and retail optical practices in
1998 for $2,554,610 in cash, $50,000 in stock, and $1,375,000 in notes payable
for a total of $3,979,610 (see also Note 14). The Company acquired one
optometric medical and retail optical practice in 1997 for $108,680 in cash,
$142,467 in stock and $189,324 in notes payable for a total of $440,471. The
Company issued 400 shares and 1,140 shares of OptiCare Class B Preferred stock
in 1998 and 1997, respectively, in connection with these acquisitions.
The 1998 and 1997 acquisitions were accounted for as purchases. Accordingly,
the results of operations of the acquired practices are included in the
combined financial statements from the dates of acquisition and the assets and
liabilities of the acquired entities have been recorded at their estimated fair
values at the dates of acquisition. The excess of the purchase prices over the
estimated fair values of the net assets acquired in the amount of $2,993,752 in
1998 and $258,991 in 1997 is recorded as goodwill and is being amortized on a
straight-line basis over 20 years.
Assuming all of the aforementioned acquisitions had occurred on January 1,
1997, combined net revenues for the Company would have been $38,596,000 for
1998 and $33,023,000 for 1997. Combined net income (loss) for the Company would
have been $(378,000) and $429,000 for 1998 and 1997, respectively.
3. INVENTORY
Inventory as of December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Surgical supplies ....................... $ 168,306 $ 130,484
Eye glasses and contact lenses .......... 1,455,067 851,167
Eye glasses work-in-process ............. 94,591 85,884
---------- ----------
Total ................................... $1,717,964 $1,067,535
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and 1997 consist of the
following:
F-60
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Equipment .......................................... $ 7,779,516 $ 7,586,877
Furniture and fixtures ............................. 2,193,960 1,024,896
Leasehold improvements ............................. 2,627,781 1,904,993
Vehicle ............................................ 21,853 21,352
------------ ------------
Total .............................................. 12,623,110 10,538,118
Accumulated depreciation and amortization .......... (6,856,943) (7,104,346)
------------ ------------
Property and equipment, net ........................ $ 5,766,167 $ 3,433,772
============ ============
</TABLE>
Depreciation expense was $968,461, $633,680 and $542,752 for the years ended
December 31, 1998, 1997 and 1996, respectively.
5. INTANGIBLE ASSETS
Intangible assets as of December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Goodwill .......................... $ 3,401,091 $ 434,147
Other intangibles ................. 982,946 815,663
------------ ----------
Total ............................. 4,384,037 1,249,810
Accumulated amortization .......... (1,082,293) (987,680)
------------ ----------
Intangible assets, net ............ $ 3,301,744 $ 262,130
============ ==========
</TABLE>
Amortization of the intangible assets for the years ended December 31, 1998,
1997 and 1996 was $94,613, $11,003 and $4,528, respectively.
6. ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Patient refunds ........... $ 369,935 $ 213,300
Incentives ................ 310,395 266,419
Payroll ................... 262,596 567,447
Vacation .................. 251,744 287,703
Accrued interest .......... 30,767 --
Other ..................... 159,201 43,718
---------- ----------
Total ..................... $1,384,638 $1,378,587
========== ==========
</TABLE>
F-61
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. LONG-TERM DEBT
The details of the Company's long-term debt and the provisions thereof at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Note payable due in quarterly payments of $3,100, including interest
at 6.69% per year, through June 2001, collateralized by specific
assets of the Company ............................................... $ 28,516 $ 38,751
Notes payable from acquisitions at various interest rates with various
maturities through September 2001, unsecured (see Note 2) ........... 290,772 189,324
Note payable from acquisition due in annual installments of $240,000
plus interest at 7.0% per year, through October 2003, collateralized
by specific assets of the Company (see Note 2) ...................... 1,200,000 --
Revolving line of credit, unsecured .................................. 1,800,000 --
---------- --------
Total ................................................................ 3,319,288 228,075
Less current maturities .............................................. 2,183,826 59,559
---------- --------
$1,135,462 $168,516
========== ========
</TABLE>
Required principal payments on the obligations discussed above as of December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999 ................... $2,183,826
2000 ................... 327,731
2001 ................... 327,731
2002 ................... 240,000
2003 ................... 240,000
----------
Total .................. $3,319,288
==========
</TABLE>
Notes payable at December 31, 1998 and 1997 represent debt issued to employees
or employee shareholders in connection with practice acquisitions.
In September 1997, the Company obtained a $3,000,000 unsecured revolving line
of credit from a bank which matures on June 30, 1999 and bears interest, at the
Company's option, at Prime or LIBOR plus 1.50%. The interest rate on this line
of credit was 7.75% at December 31, 1998. Additionally, there is a 0.25%
commitment fee on the unused balance of the facility. The Company must comply
with various restrictive covenants in connection with its revolving line of
credit. The Company was in violation of certain covenants in 1998 and received
a waiver from the bank with respect to these violations.
The fair value of each of the Company's debt instruments approximated its
recorded value at December 31, 1998 and 1997, based on the Company's effective
current borrowing rate for debt with similar terms and remaining maturities.
8. LEASES
The Company leases facilities and certain equipment under several cancelable
and noncancelable operating leases expiring in various years through 2010.
Certain of the facility leases provide for renewal periods of up to 10 years,
at the option of the Company, and at rental payments as negotiated under the
respective leases (see Note 12).
Aggregate future minimum rental payments under noncancelable operating leases
as of December 31, 1998 are as follows:
F-62
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------------
<S> <C>
1999 ........................ $1,864,613
2000 ........................ 1,308,274
2001 ........................ 780,211
2002 ........................ 657,471
2003 ........................ 427,689
Thereafter .................. 354,124
----------
Total ....................... $5,392,382
==========
</TABLE>
9. SHAREHOLDERS' EQUITY
All employee shareholders of OptiCare and OptiCare P.C. have executed a
"Shareholders' Agreement" with their respective entities. The agreements
provide, among other things, that no shareholder can dispose of their stock
without first offering the stock to the entity. The agreements also provide
that certain shareholders, who are also employees of OptiCare or OptiCare P.C.,
must offer their stock to the respective entity upon voluntary termination or
termination for cause, as defined in the agreement.
During 1996, Blue Cross and Blue Shield of Connecticut, Inc. exercised a
warrant to purchase 20,494 shares of Class D common stock, par value $31.64 per
share for a total price of $1,660,000.
On October 15, 1997, OptiCare underwent a recapitalization in connection with
the stock purchase and warrant agreements described below. The new equity
structure established three new classes of stock and canceled all of the
preexisting classes.
Outstanding shares of Class A and C common stock were converted one for one to
new Class B Convertible Preferred Stock, with the exception of 6,264 shares of
Class A common stock and 16,312 shares of Class C common stock. Outstanding
shares of Class B and D common stock, as well as the remaining 16,312 shares
Class C common stock, were all converted one for one to New Class A Convertible
Preferred Stock. Both Series A and B Preferred Shares are convertible into
common stock based on a one for one basis. Additionally, all preferred shares
shall be automatically converted into common stock in the event of an initial
public offering meeting certain qualifications as defined in the Certificate of
Incorporation.
Series A and B Preferred Shareholders are entitled to $93.68 per share plus any
unpaid dividends upon voluntary or involuntary liquidation. Upon liquidation,
Series A Preferred Shareholders shall be entitled to receive their liquidation
value per share before Series B Preferred Shareholders receive any
distributions. Additionally, Series B Preferred Shareholders shall be entitled
to receive their liquidation value per share before the common stockholders
receive any distributions in liquidation.
On October 15, 1997, OptiCare entered into a stock purchase agreement with a
group of investors (the "New Investors") which provided for the sale of 64,048
shares of New Class A Preferred Stock for $6,000,000 in cash, less expenses of
$215,862. Additionally, OptiCare entered into a warrant agreement which
resulted in the issuance of warrants to the New Investors to purchase 48,669
shares of New Class B Preferred Stock and to existing investors to purchase
12,353 shares of New Class B Preferred Stock. These warrants are exercisable at
a price of $93.68 per share of New Class B Preferred Stock and expire on
October 15, 2002. No warrants were exercised during 1998 or 1997.
In November 1997, OptiCare repurchased the remaining 6,264 shares of Class A
common stock from an employee shareholder for an aggregate price of $586,811.
On January 1, 1998 Opticare adopted the 1997 Stock Option Plan (the "Plan"),
which permits the granting of options to employees of OptiCare and OptiCare
P.C., which shall be either incentive stock options, as defined under Section
422 of the Internal Revenue code, or non-qualified options. The Company is
F-63
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
authorized to grant 48,814 options under the Plan, which expire in 2008. The
options vest ratably over a four-year period. During 1998, 42,497 options were
granted at an exercise price of $30. No options were exercised or canceled
during 1998. The Company applies APB Opinion No. 25 and related interpretations
in accounting for its Plan. Accordingly, no compensation cost has been
recognized for stock options awarded under the Plan. Had compensation cost for
the Company's stock option plan been determined based on the fair value at
grant dates consistent with the methodology prescribed under SFAS No.123, the
Company's net loss for the year ended December 31, 1998 would have been
increased by an immaterial amount.
10. INCOME TAXES
The tax effects of significant items comprising the net deferred tax assets
(liabilities) as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------------
<S> <C> <C>
Current:
Cash to accrual conversion .................... $ -- $ (211,857)
Managed care claims ........................... 320,279 31,231
Vacation accrual .............................. 101,377 118,232
Other ......................................... 45,353 (4,366)
-------- ----------
Total net current assets (liabilities) ......... $467,009 $ (66,760)
======== ==========
Noncurrent:
Depreciation .................................. $ 45,814 $ 140,411
Other ......................................... 27,193 22,565
-------- ----------
Total net noncurrent assets .................... $ 73,007 $ 162,976
======== ==========
</TABLE>
The provision (benefit) for income taxes for the years ended December 31, 1998,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal ................ $ 78,923 $ 336,054 $ 265,711
State .................. -- 96,270 92,631
---------- ---------- ----------
Total current .......... 78,923 432,324 358,342
========== ========== ==========
Deferred:
Federal ................ (339,100) (221,324) (144,090)
State .................. (104,700) (78,400) (56,000)
---------- ---------- ----------
Total deferred ......... (443,800) (299,724) (200,090)
---------- ---------- ----------
Total .................. $ (364,877) $ 132,600 $ 158,252
========== ========== ==========
</TABLE>
F-64
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
A reconcilation from the Federal income tax provision (benefit) at the
statutory rate to the effective rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate .............................. $ (294,870) $ 156,167 $102,359
State income taxes, net of federal benefit .......... (52,036) 32,589 22,850
Other ............................................... (17,971) (56,156) 33,043
---------- --------- --------
$ (364,877) $ 132,600 $158,252
========== ========= ========
</TABLE>
11. RETIREMENT PLAN
The Company provides a defined contribution 401(k) savings plan (the "Plan"),
in which all full-time employees of the Company with at least one year of
service are eligible to participate. Eligible employees may contribute between
1% to 25% of their salary to the Plan subject to IRS limitations. The Company
provides a matching contribution of 25% of the employee contributions, whereby
only the first 3% of employee salaries are matched. The Company's contribution
to the Plan was $70,916, $55,909 and $40,077 for the years ended December 31,
1998, 1997 and 1996, respectively.
12. RELATED PARTY TRANSACTIONS
The Company has advanced funds to shareholders and employees which are
repayable under various arrangements. All advances are unsecured. Interest
income under these agreements was not significant during the years ended
December 31, 1998, 1997 and 1996.
In addition, the Company leases various facilities from several of its
shareholders and entities owned by several of its shareholders. Payments under
such leases approximated $1,528,000, $1,259,000 and $1,124,000 during the year
ended December 31, 1998, 1997 and 1996, respectively.
OptiCare, Inc. has guaranteed an obligation of O.C. Realty Associates, a
related party. The amount of such indebtedness at December 31, 1998, 1997 and
1996 was $221,853, $233,814 and $244,706, respectively, and is secured by the
assets of O.C. Realty Associates.
In connection with the stock purchase agreement, the Company also entered into
a consulting agreement with one of the New Investors. Under the terms of this
agreement this individual will provide management consulting services for a
period of 36 months beginning October 15, 1997.
The Company, in its normal course of business, has entered into various arm's
length managed care, ambulatory surgery center, and provider agreements with
its health care investors. Total net revenue earned from these related parties
was $7,552,152, $3,129,062, and $2,843,300 for the years ended December 31,
1998, 1997 and 1996, respectively.
13. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Medicare represented 25%, 29%, and 28% of total net revenue for the years ended
December 31, 1998, 1997 and 1996, respectively and 13% and 16% of accounts
receivable at December 31, 1998 and 1997, respectively. In addition, one other
customer/shareholder represented approximately 20%, 11% and 12% of total net
revenue during 1998 , 1997 and 1996, respectively and 29% and 22% of accounts
receivable at December 31, 1998 and 1997, respectively.
F-65
<PAGE>
OPTICARE EYE HEALTH CENTERS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
14. CONTINGENCIES
In connection with the purchase of a practice in 1998, the Company agreed to
pay, as additional consideration for the acquisition of the assets, a
contingent payment based upon the profitability of the practice for the twelve
month period beginning November 1, 1998. The contingent payment, not to exceed
$320,000, is due in quarterly installments beginning on January 1, 2000 through
October 1, 2003 at an interest rate of 7%. Any such contingent payments will be
recorded, when earned, as goodwill as additional purchase price consideration.
The Company is involved in litigation in the normal course of business. The
Company is vigorously defending its position and, based on discussions with
outside counsel, believes it will prevail with respect to any outstanding
litigation. Therefore, no provision for loss has been recorded.
******
F-66
<PAGE>
ANNEX LIST
Annex A: Agreement and Plan of Merger.
Annex B: Proposed Certificate of Amendment of the Certificate of
Incorporation of Saratoga.
Annex C: Performance Stock Program.
Annex D: Employee Stock Purchase Plan
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SARATOGA RESOURCES, INC.,
OPTICARE SHELLCO MERGER CORPORATION,
PRIMEVISION SHELLCO MERGER CORPORATION,
OPTICARE EYE HEALTH CENTERS, INC.
AND
PRIMEVISION HEALTH, INC.
DATED AS OF APRIL 12, 1999
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I
CLOSING; DEFINITIONS ...................................... 1
1.1 CLOSING ............................................. 1
1.2 DEFINITIONS ......................................... 1
ARTICLE II
THE MERGERS ............................................... 14
2.1 THE MERGERS. ........................................ 14
2.2 EFFECTIVE TIME OF THE MERGERS. ...................... 14
2.3 CERTIFICATES OF INCORPORATION. ...................... 14
2.4 BY-LAWS. ............................................ 15
2.5 BOARDS OF DIRECTORS; OFFICERS. ...................... 15
2.6 EFFECTS OF MERGERS. ................................. 15
2.7 MERGER CONSIDERATION. ............................... 15
2.7.1 OptiCare Merger ..................................... 15
2.7.2 Prime Merger ........................................ 16
2.8 FRACTIONAL SARATOGA SHARES. ......................... 17
2.9 DISSENTING SHARES. .................................. 18
2.10 CLOSING OF TRANSFER BOOKS. .......................... 19
2.11 EXCHANGE OF SHARES. ................................. 19
2.12 OPTIONS AND WARRANTS ................................ 20
2.13 DIVIDENDS. .......................................... 22
2.14 STOCKHOLDERS MEETINGS. .............................. 22
2.15 ASSISTANCE IN CONSUMMATION OF THE MERGERS. .......... 22
2.16 TRANSFER TAXES. ..................................... 22
2.17 FURTHER ASSURANCES. ................................. 23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES ............. 23
3.1 ORGANIZATION AND GOOD STANDING ...................... 23
3.2 AUTHORITY; NO CONFLICT .............................. 24
3.3 CAPITALIZATION ...................................... 25
3.4 FINANCIAL STATEMENTS ................................ 27
3.5 BOOKS AND RECORDS ................................... 28
3.6 TITLE TO PROPERTIES; ENCUMBRANCES ................... 28
3.7 CONDITION AND SUFFICIENCY OF ASSETS ................. 28
3.8 NO UNDISCLOSED LIABILITIES .......................... 29
3.9 TAXES ............................................... 29
3.10 NO MATERIAL ADVERSE CHANGE .......................... 30
3.11A 401(k) Plan ......................................... 30
3.11B Welfare Benefit Plans ............................... 32
3.11C Employee Benefit Plans .............................. 35
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL 37
AUTHORIZATIONS .....................................
3.13 LEGAL PROCEEDINGS; ORDERS ........................... 40
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS ............... 42
3.15 CONTRACTS; NO DEFAULTS .............................. 43
3.16 INSURANCE ........................................... 46
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3.17 ENVIRONMENTAL MATTERS ........................................ 48
3.18 EMPLOYEES .................................................... 49
3.19 LABOR RELATIONS; COMPLIANCE .................................. 49
3.20 INTELLECTUAL PROPERTY ........................................ 50
3.21 CERTAIN PAYMENTS ............................................. 50
3.22 RELATIONSHIPS WITH RELATED PERSONS ........................... 51
3.23 BROKERS OR FINDERS ........................................... 51
3.24 SEC FILINGS .................................................. 51
3.25 DISCLOSURE ................................................... 51
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGERS ............................. 52
4.1 CONDUCT OF BUSINESS PENDING THE MERGERS ...................... 52
4.2 CONDUCT OF BUSINESS OF PRIME SUB AND OPTICARE SUB ............ 54
ARTICLE V
ADDITIONAL AGREEMENTS ............................................... 54
5.1 ACCESS AND INFORMATION ....................................... 54
5.2 PROXY STATEMENT .............................................. 54
5.3 EMPLOYEE MATTERS ............................................. 55
5.4 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE .......... 56
5.5 HSR ACT ...................................................... 57
5.6 ADDITIONAL AGREEMENTS ........................................ 57
5.7 ADVICE OF CHANGES; SEC FILINGS ............................... 57
5.8 RESTRUCTURING OF MERGER ...................................... 57
5.9 STATE TAKEOVER STATUTES ...................................... 58
5.10 AFFILIATE AGREEMENTS ......................................... 58
5.11 ACCOUNTANTS' LETTERS ......................................... 58
5.12 SARATOGA VOTING .............................................. 58
5.13 ACTION BY THE OFFICERS, DIRECTORS, ETC. ...................... 58
5.14 MEETINGS OF STOCKHOLDERS ..................................... 58
ARTICLE VI
CONDITIONS PRECEDENT ................................................ 59
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS 59
6.2 DOCUMENTS TO BE DELIVERED .................................... 65
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER ................................... 66
7.1 TERMINATION BY MUTUAL CONSENT ................................ 66
7.2 TERMINATION BY SARATOGA, OPTICARE OR PRIME ................... 66
7.3 EFFECT OF TERMINATION AND ABANDONMENT ........................ 67
7.4 EXTENSION; WAIVER ............................................ 67
7.5 AMENDMENT .................................................... 68
ARTICLE VIII
GENERAL PROVISIONS .................................................. 68
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS .................................................. 68
8.2 NOTICES ...................................................... 68
8.3 FEES AND EXPENSES ............................................ 69
8.4 PUBLICITY .................................................... 70
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8.5 SPECIFIC PERFORMANCE ................ 70
8.6 ASSIGNMENT; BINDING EFFECT .......... 70
8.7 ENTIRE AGREEMENT .................... 70
8.8 GOVERNING LAW ....................... 70
8.9 COUNTERPARTS ........................ 71
8.10 INTERPRETATION ...................... 71
8.11 INCORPORATION OF EXHIBITS ........... 71
8.12 SEVERABILITY ........................ 71
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of April
12, 1999, by and among SARATOGA RESOURCES, INC., a Delaware corporation
("Saratoga"), OPTICARE SHELLCO MERGER CORPORATION, a Delaware corporation and a
wholly owned subsidiary of Saratoga ("OptiCare Sub"), PRIMEVISION SHELLCO
MERGER CORPORATION, a Delaware corporation and a wholly owned subsidiary of
Saratoga ("Prime Sub"), OPTICARE EYE HEALTH CENTERS, INC., a Connecticut
corporation ("OptiCare"), and PRIMEVISION HEALTH, INC., a Delaware corporation
("Prime"). Saratoga, OptiCare Sub, Prime Sub, OptiCare and Prime are sometimes
referred to in this Agreement individually as a "Party" and collectively as the
"Parties."
WITNESSETH:
WHEREAS, the respective boards of directors of Saratoga, OptiCare Sub,
Prime Sub, OptiCare and Prime have approved a plan of reorganization which
contemplates the simultaneous merger of OptiCare Sub with and into OptiCare and
of Prime Sub with and into Prime (individually a "Merger" and collectively the
"Mergers") pursuant to which the outstanding shares of capital stock of each of
OptiCare and Prime will be converted into shares of the $.001 par value common
stock of Saratoga; and
WHEREAS, the Parties desire to enter into this Agreement for the purpose
of setting forth certain representations, warranties, covenants and agreements
by each Party to the other Parties and to set forth the terms and conditions of
the Mergers;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises herein contained, and on the terms and subject to the conditions
herein set forth, the Parties agree as follows:
ARTICLE I.
CLOSING; DEFINITIONS
1.1 CLOSING. The closing of the Contemplated Transactions (the "Closing")
shall take place at a time and place mutually agreeable to the Parties on a
date (the "Closing Date") within two (2) Business Days after the satisfaction
or waiver of all conditions precedent set forth in Article VI hereof. The
Certificates of Merger shall be filed with the appropriate authorities in the
States of Delaware and Connecticut as part of the Closing.
1.2 DEFINITIONS. The terms defined in this Section 1.2, whenever used in
this Agreement (including the Exhibits and the Schedules), shall have the
respective meanings indicated below for all purposes of this Agreement.
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Agreement" shall have the meaning ascribed to such term in the first
paragraph of this Agreement and Plan of Merger.
"AMEX" shall mean the American Stock Exchange.
"Antitrust Division" shall have the meaning ascribed to such term in
Section 5.5
"Applicable Contract" shall mean any Contract (a) under which a
Representing Party has or may acquire any rights, (b) under which a
Representing Party has or may become subject to any obligation or Liability, or
(c) by which a Representing Party or any of the assets owned or used by it is
or may become bound.
"ASA Agreement" shall have the meaning ascribed to such term in Section
6.1(r).
"Balance Sheet" shall have the meaning ascribed to such term in Section
3.4.
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"Basis" shall mean any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or is reasonably likely to
form the basis for any specified consequence.
"Best Efforts" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a materially
adverse change in the benefits to such Person of this Agreement and the
Contemplated Transactions.
"Breach" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been any inaccuracy in or breach of, or any failure to perform or comply with,
such representation, warranty, covenant, obligation, or other provision, and
the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence, or circumstance.
"Business Day" shall mean a day other than a Saturday or Sunday, or such
other day on which commercial banks in New York City are authorized or required
to close.
"Cap" shall have the meaning ascribed to such term in Section 5.4(a).
"CBCA" shall mean the Connecticut Business Corporation Act.
"CEO Employment Agreement" shall mean the employment agreement between Dr.
Dean J. Yimoyines and Saratoga referred to in Section 6.1(n).
"Certificate" shall have the meaning ascribed to such term in Section
2.11(b).
"Certificates of Merger" shall mean the certificates of merger to be filed
with the appropriate authorities in the States of Connecticut and Delaware and
which are required to effect the Mergers in accordance with the CBCA and the
DGCL, respectively.
"Closing" shall have the meaning ascribed to such term in Section 1.1.
"Closing Date" shall have the meaning ascribed to such term in Section
1.1.
"Closing Documents" shall have the meaning ascribed to such term in
Section 6.2.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the IRC and Sections 601
through 608 of ERISA, and any amendments thereto and successor provisions
thereof, including any regulations promulgated under the applicable provisions
of the IRC and ERISA.
"Competing Business" shall have the meaning ascribed to such term in
Section 3.22.
"Consent" shall mean any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" shall mean all of the transactions
contemplated by this Agreement, including:
(a) the Reverse Stock Split;
(b) the merger of OptiCare Sub with and into OptiCare and the merger of
Prime Sub with and into Prime;
(c) the execution, delivery, and performance of the CEO Employment
Agreement, the Other Employment Agreements and the Prime Physician
Agreements; and
(d) the performance by the Parties of their respective covenants and
obligations under this Agreement.
"Contract" shall mean any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
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"Controlled Group" shall mean a Party and any entity that is considered a
single employer with a Party pursuant to subsections (b), (c), (m) or (o) of
Section 414 of the IRC.
"Bank Austria Warrants" shall mean the various warrants to purchase an
aggregate of 220,281 shares of Prime Common Stock or Prime convertible
preferred stock issued to and held by Bank Austria Aktiengesellschaft. Grand
Cayman Branch, or its registered assigns.
"DGCL" shall mean the General Corporation Law of Delaware.
"DOL" shall mean the United States Department of Labor.
"Effective Time" shall have the meaning ascribed to such term in Section
2.2.
"Employee" shall mean an individual who is a common law employee of
another Person.
"Employee Benefit Plan" shall mean all written or oral plans, Contracts or
other arrangements for the benefit or advantage of any officer, director,
Employee, contractor or agent, or any group of such Persons, with respect to
which a Representing Party has or may have a Liability, including, without
limitation, plans described in Section 3(3) of ERISA; deferred compensation
arrangements; supplemental executive retirement plans; rabbi or secular trusts;
corporate-owned life insurance; split-dollar insurance arrangements; letter of
credit or indemnity policies for deferred compensation arrangements; stock or
performance awards; long and short-term incentive plans; golden or tin
parachute agreements; medical, disability, life and other insurance benefits;
severance plans or policies; sick leave; vacation benefits; educational,
transportation, parking and other subsidies; allowances for entertainment;
charitable contributions to be made upon an individual's request; use of an
automobile; payment of club dues; and any other arrangements similar to any of
the foregoing.
"Encumbrance" shall mean any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind, including, without limitation,
any restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environmental Law" means any federal, state or local law, regulation,
order, decree, permit, authorization, common law or agency requirement with
force of law relating to: (1) the protection or restoration of the environment,
health or safety (in each case as relating to the environment) or natural
resources, or (2) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, including all regulations and rules issued pursuant thereto. All
citations to ERISA, or to the Department of Labor Regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereof.
"Exchange Agent" shall have the meaning ascribed to such term in Section
2.11.
"Facilities" shall mean any real property, leaseholds, or other interests
currently or formerly owned or operated by a Representing Party and any
buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by a
Representing Party.
"Fiduciary" shall have the meaning set forth in Section 3(21) of ERISA.
"FTC" shall have the meaning ascribed to such term in Section 5.5.
"GAAP" shall mean generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheets and
the other financial statements referred to in Section 3.4 were prepared.
"Governmental Authorization" shall mean any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement.
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"Governmental Body" shall mean any:
(a) nation, state, county, city, town, village, borough, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, commission, commissioner, department,
official, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"Hazardous Substance" means any hazardous or toxic substance, material or
waste, including those substances, materials and wastes listed in the United
States Department of Transportation Hazardous Materials Table (49 C.F.R.
Section 172.101), or by the United States Environmental Protection Agency as
hazardous substances (40 C.F.R. Part 302) and amendments thereto, petroleum
products or other such substances, materials and wastes that are or become
regulated under any applicable local, state or federal law, including petroleum
compounds, lead, asbestos and polychlorinated biphenyls.
"HIPAA" shall mean the Health Insurance Portability and Accountability Act
of 1996 as set forth in Sections 9801 through 9806 of the IRC and Sections 701
through 707, 711 through 712, and 731 through 734 of ERISA and any amendments
thereto and successor provisions thereof, including any regulations promulgated
under the applicable provisions of the IRC and ERISA.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Parties"' shall have the meaning ascribed to such term in
Section 5.4.
"IRC" shall mean the Internal Revenue Code of 1986 or any successor law,
and regulations issued by the IRS pursuant to such code or any successor law.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of or
should be aware of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of
a particular fact or other matter if any individual who is serving, or who has,
except with respect to Saratoga, at any time served, as a director, officer,
partner, manager, executor, or trustee of such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other matter.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, rule, regulation,
statute, or treaty.
"Liability" shall mean any liability (whether known or unknown, asserted
or unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, or due or to become due), including any liability for Taxes.
"Marlin Capital Warrants" shall mean the warrants to purchase 1,333,333
shares of Prime Common Stock issued to and held by Marlin Capital, L.P.
"Material Adverse Effect" shall mean, with respect to a Party, any
condition, event, fact, change, effect or occurrence that individually or in
the aggregate with similar conditions, events, facts, changes, effects or
occurrences has or will have a material adverse effect on the Contracts,
business, operations, assets, licenses, results of operations, or financial
condition of such Party and its Subsidiaries, if any, taken as a whole.
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"Medical Waste Laws" shall have the meaning ascribed to such term in
Section 3.17(b).
"Merger(s)" shall have the meaning ascribed to such term in the Preamble
of this Agreement.
"Merger Consideration" shall have the meaning ascribed to such term in
Section 2.7.2(c).
"NASDAQ" -- The Nasdaq Stock Market.
"Objecting OptiCare Shares" shall have the meaning ascribed to such term
in Section 2.9(a).
"Objecting Prime Shares" shall have the meaning ascribed to such term in
Section 2.9(b).
"OptiCare" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"OptiCare Class A Preferred Stock" shall mean the Class A Convertible
Preferred Stock, par value $.01 per share, of OptiCare.
"OptiCare Class B Preferred Stock" shall mean the Class B Convertible
Preferred Stock, par value $.01 per share, of OptiCare.
"OptiCare Common Stock" shall mean the Common Stock, par value $.01 per
share, of OptiCare.
"OptiCare Disclosure Schedule" shall have the meaning ascribed to such
term in the definition of "Representing Party's Disclosure Schedule."
"OptiCare Exchange Ratio" shall have the meaning ascribed to such term in
Section 2.7(c).
"OptiCare Merger" shall have the meaning ascribed to such term in Section
2.1.
"OptiCare Merger Consideration" shall have the meaning ascribed to such
term in Section 2.7(c).
"OptiCare Shares" shall have the meaning ascribed to such term in Section
3.3(b).
"OptiCare Stock" shall have the meaning ascribed to such term in Section
2.7(b).
"OptiCare Sub" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"OptiCare Sub Common Stock" shall mean the Common Stock, par value $.01
per share, of OptiCare Sub.
"OptiCare Sub Shares" shall have the meaning ascribed to such term in
Section 3.3(d).
"OptiCare Surviving Corporation" shall have the meaning ascribed to such
term in Section 2.1.
"Order" shall mean any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and
is taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"Organizational Documents" shall mean (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a
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limited partnership; (d) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; (e) the
articles of organization and operating agreement of a limited liability
company; and (f) any amendment to any of the foregoing.
"Other Employment Agreements" shall have the meaning ascribed to such term
in Section 6.1(n).
"Other Parties" shall mean the Parties other than a Representing Party to
whom such Representing Party makes representations and warranties under Article
III.
"Outstanding Option" shall have the meaning ascribed to such term in
Section 2.12.
"Outstanding Options and Warrants" shall have the meaning ascribed to such
term in Section 2.12.
"Outstanding Warrant" shall have the meaning ascribed to such term in
Section 2.12.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Parties" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"Party" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"Pension Benefit Plan" shall mean any plan as defined in Section 3(2) of
ERISA with respect to which a Representing Party has or may have a Liability.
"Person" shall mean any individual, corporation (including any non-profit
corporation), company, general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"Prime" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"Prime Class A Preferred Stock" shall mean the Class A Preferred Stock,
par value $.01 per share, of Prime.
"Prime Common Stock" shall mean the Common Stock, par value $.01 per
share, of Prime.
"Prime Disclosure Schedule" shall have the meaning ascribed to such term
in the definition of "Representing Party's Disclosure Schedule."
"Prime Exchange Ratio" shall have the meaning ascribed to such term in
Section 2.7.2(c).
"Prime Merger" shall have the meaning ascribed to such term in Section
2.1.
"Prime Merger Consideration" shall have the meaning ascribed to such term
in Section 2.7(d).
"Prime Physician Agreements" shall mean the services agreements and
transition agreements between Prime and physician practices which will become
effective no later than the Effective Date.
"Prime Shares" shall have the meaning ascribed to such term in Section
3.3(a).
"Prime Sub" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"Prime Sub Common Stock" shall mean the Common Stock, par value $.01 per
share, of Prime Sub.
"Prime Sub Shares" shall have the meaning ascribed to such term in Section
3.3(c).
"Prime Surviving Corporation" shall have the meaning ascribed to such term
in Section 2.1.
"Proceeding" shall mean any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought or conducted by, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Proprietary Rights Agreement" shall have the meaning ascribed to such
term in Section 3.18(b).
"Proxy Statement/Prospectus" shall have the meaning ascribed to such term
in Section 5.2.
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"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, manager,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of voting securities or other voting interests representing at
least 10% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 10% of the outstanding equity
securities or equity interests in a Person.
"Representative" shall mean, with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.
"Representing Party" shall mean Saratoga, OptiCare Sub, Prime Sub,
OptiCare or Prime, as the case may be, when it is making the representations
and warranties to the Other Parties set forth in Article III.
"Representing Party's Disclosure Schedule" shall mean the disclosure
schedule delivered by a Representing Party to the Other Parties under Article
III concurrently with the execution and delivery of this Agreement (as such may
relate specifically to Prime, the "Prime Disclosure Schedule," as such may
relate specifically to OptiCare, the "OptiCare Disclosure Schedule" and as such
may relate specifically to Saratoga, the "Saratoga Disclosure Schedule").
"Requisite Regulatory Approvals" shall have the meaning ascribed to such
term in Section 6.1(g).
"Reverse Stock Split" shall mean the reverse split referred to in Section
6.1(u) of the common stock, $.001 par value, of Saratoga as it existed before
such split.
"Rule 145 Affiliates" shall have the meaning ascribed to such term in
Section 5.10.
"Saratoga" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"Saratoga Common Stock" shall mean the Common Stock, $.001 par value, of
Saratoga as it is constituted after the Reverse Stock Split.
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"Saratoga Disclosure Schedule" shall have the meaning ascribed to such
term in the definition of "Representing Party's Disclosure Schedule."
"Saratoga Insiders" shall have the meaning ascribed to such term in
Section 6.1(s).
"Saratoga Shares" shall have the meaning ascribed to such term in Section
3.3(e).
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Filings" shall have the meaning ascribed to such term in Section
3.24.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor law, and all regulations and rules issued pursuant to that Act or any
successor law.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor law, and all regulations and rules issued pursuant
to that Act or any successor law.
"Seller Notes" shall have the meaning ascribed to such term in Section
6.1(r).
"Steve Waite Options" shall mean the options to purchase 65,000 shares of
Prime Common Stock granted to and held by Steven B. Waite.
"Stock Option Plans" shall have the meaning ascribed to such term in
Section 2.12.
"Subsidiary" shall mean with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body or otherwise having the power to direct the
business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or more of its
Subsidiaries. Notwithstanding the foregoing, the term "Subsidiary" when used
with respect to Saratoga shall not include any corporation the stock of which
is held by Saratoga on the date of this Agreement but is disposed of by
Saratoga before the Effective Time of the Mergers, provided that Saratoga will
have no liabilities with respect to such corporation after such disposition.
"Surviving Corporation" shall mean one of the corporations which survives
one of the Mergers, as defined in Section 2.1.
"Tax" shall mean any tax (including any income tax, capital gains tax,
value-added tax, sales tax, use tax, property tax, payroll tax, workers
compensation tax, unemployment tax, gift tax or estate tax), levy, assessment,
tariff, duty (including any customs duty), deficiency, or other fee, and any
related charge or amount (including any fine, penalty, interest, or addition to
tax), imposed, assessed, or collected by or under the authority of any
Governmental Body or payable pursuant to any tax-sharing agreement or any other
Contract relating to the sharing or payment of any such tax, levy, assessment,
tariff, duty, deficiency, or fee.
"Tax Return" shall mean any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
"VEBA" shall mean a voluntary Employees' beneficiary association created
pursuant to Section 501(c)(9) of the IRC.
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"Welfare Benefit Plan" shall mean any plan as defined in Section 3(1) of
ERISA, any cafeteria plan under Section 125 of the IRC, any dependent care
assistance plan under Section 129 of the IRC, and any educational assistance
plan under Section 127 of the IRC with respect to which a Representing Party
has or may have a Liability.
ARTICLE II
THE MERGERS
2.1 THE MERGERS. Upon the terms and subject to the conditions hereof, at
the Effective Time, (a) Prime Sub shall be merged into Prime and the separate
existence of Prime Sub shall thereupon cease (the "Prime Merger"), and Prime as
the corporation surviving the Prime Merger (the "Prime Surviving Corporation"),
shall by virtue of the Prime Merger continue its corporate existence under the
laws of the State of Delaware and (b) OptiCare Sub shall be merged into
OptiCare and the separate existence of OptiCare Sub shall thereupon cease (the
"OptiCare Merger"), and OptiCare, as the corporation surviving the OptiCare
Merger (the "OptiCare Surviving Corporation"), shall by virtue of the OptiCare
Merger continue its corporate existence under the laws of the State of
Connecticut.
2.2 EFFECTIVE TIME OF THE MERGERS. The Mergers shall become effective at
the date and time (the "Effective Time") specified in properly executed
Certificates of Merger duly filed with the Secretary of State of the State of
Delaware and the Secretary of the State of the State of Connecticut, which
filings shall be made as soon as practicable following the satisfaction or, if
permissible, waiver of the conditions set forth in Article VI hereof. The
Certificates of Merger shall be in the form required by, and executed in
accordance with the relevant provisions of, the DGCL and the CBCA.
2.3 CERTIFICATES OF INCORPORATION. (a) The Certificate of Incorporation of
Prime shall be the Certificate of Incorporation of the Prime Surviving
Corporation after the Effective Time, until altered or amended.
(b) The Certificate of Incorporation of OptiCare shall be the Certificate
of Incorporation of the OptiCare Surviving Corporation after the Effective
Time, until altered or amended; provided, however, that Section 4.2(b) of
Article 4 of the Certificate of Incorporation of OptiCare shall be amended
and restated in its entirety as follows:
"(b) For purposes of this Section 4.2, (i) any acquisition of the
Corporation by means of merger (other than the merger of OptiCare
Shellco Merger Corporation into the Corporation pursuant to the
Agreement and Plan of Merger by and among Saratoga Resources, Inc.,
OptiCare Shellco Merger Corporation, PrimeVision Shellco Merger
Corporation, OptiCare Eye Health Centers, Inc. and PrimeVision Health,
Inc.), consolidation or other form of corporate reorganization, other
than a mere reincorporation transaction (but excluding such a
transaction as a result of which the stockholders of the Corporation
immediately prior to the transaction have the right, following the
transaction, to elect a majority of the directors of the surviving
corporation), and (ii) a sale of 51% or more of the assets of the
Corporation (but excluding a sale of stock of the Corporation) shall be
treated as a liquidation, dissolution or winding up of the Corporation
and shall entitle the holders of Preferred Stock to receive at the
closing in cash, securities or other property (valued as provided in
Section 4.2(c)) amounts as specified in Sections 4.2(a)(i) and
4.2(a)(ii), respectively."
2.4 BY-LAWS. The By-laws of Prime as in effect on the Effective Time shall
be the By-laws of the Prime Surviving Corporation and the By-laws of OptiCare
as in effect on the Effective Time shall be the By-laws of the OptiCare
Surviving Corporation, and thereafter such By-laws may be amended in accordance
with their terms and as provided by law and this Agreement.
2.5 BOARDS OF DIRECTORS; OFFICERS. Prior to the Closing, OptiCare and
Prime shall mutually agree on the persons who will be the directors and
officers of the OptiCare Surviving Corporation and the Prime Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the respective corporations.
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2.6 EFFECTS OF MERGERS. The Prime Merger shall have the effects set forth
in Section 259 and other applicable provisions of the DGCL and the OptiCare
Merger shall have the effects set forth in Section 259 and other applicable
provisions of the DGCL and Section 33-820(a) of the CBCA.
2.7 MERGER CONSIDERATION. At the Effective Time, by virtue of the Merger
and except as may be provided in this Section 2.7, without any action on the
part of OptiCare, OptiCare Sub, Prime, Prime Sub or the holders of any of the
following securities:
2.7.1 OPTICARE MERGER.
(a) Each share of OptiCare Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the OptiCare
Merger and without any action on the part of the holder thereof, be
converted into and become one validly issued, fully paid and nonassessable
share of common stock of the OptiCare Surviving Corporation.
(b) All the outstanding shares of OptiCare Class A Preferred Stock,
OptiCare Class B Preferred Stock, and OptiCare Common Stock, (collectively
the "OptiCare Stock") which are held by OptiCare or any Subsidiary of
OptiCare, Prime or any Subsidiary of Prime, or Saratoga or any Subsidiary
of Saratoga, shall be cancelled and extinguished without any conversion
thereof and no payment or distribution shall be made with respect thereto.
(c) Each share of OptiCare Stock issued and outstanding immediately prior
to the Effective Time, other than Objecting OptiCare Shares (as defined
below) and shares of OptiCare Stock cancelled pursuant to Section 2.7.1(b),
shall by virtue of the OptiCare Merger, and without any action on the part
of the holder thereof, be converted into the right to receive, and, upon
surrender of the Certificate or Certificates representing such shares of
OptiCare Stock, shall be exchangeable for, the number of shares of Saratoga
Common Stock determined by multiplying each share of OptiCare Stock by the
OptiCare Exchange Ratio as defined below. The OptiCare Exchange Ratio shall
be the quotient of (a) the number of shares of Saratoga Common Stock which
shall equal forty eight and seven hundred forty-five thousandths percent
(48.745%) of the total amount of Saratoga Common Stock calculated on a
primary basis to be outstanding immediately after the Effective Time,
giving effect to the Reverse Stock Split and the Mergers and taking into
account any shares of Saratoga Common Stock which are not issued in the
Mergers and the Reverse Stock Split because they are attributable to
stockholders of Saratoga and former stockholders of OptiCare and Prime who
may have demanded and perfected statutory dissenters rights; divided by (b)
the number of outstanding shares of OptiCare Stock calculated on a primary
basis. Saratoga shall issue to holders of OptiCare Stock the number of
shares of Saratoga Common Stock calculated by applying the OptiCare
Exchange Ratio, in exchange for each such share of OptiCare Stock (the
"OptiCare Merger Consideration").
(d) If between the date of this Agreement and the Effective Time, the
outstanding shares of Saratoga Common Stock shall be changed into a
different number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment (other than the Reverse Stock Split), or if a stock
dividend or extraordinary cash or other dividend thereon shall be declared
with a record date within such period, then the number of shares of
Saratoga Common Stock constituting the OptiCare Merger Consideration and
the OptiCare Exchange Ratio will be appropriately and proportionately
adjusted so that the number of such shares of Saratoga Common Stock (or
such class of shares into which shares of Saratoga Common Stock have been
changed) that will be issued in the OptiCare Merger will equal the number
of such shares and other consideration that holders of shares of OptiCare
Stock would have received pursuant to such classification,
recapitalization, split-up, combination, exchange of shares or readjustment
had the record date therefor been immediately following the Effective Time.
2.7.2 PRIME MERGER.
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(a) Each share of Prime Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Prime
Merger and without any action on the part of the holder thereof, be
converted into and become one validly issued, fully paid and nonassessable
share of common stock of the Prime Surviving Corporation.
(b) All of the outstanding shares of Prime Common Stock which are held by
Prime or any Subsidiary of Prime, OptiCare or any Subsidiary of OptiCare,
or Saratoga or any Subsidiary of Saratoga, shall be cancelled and
extinguished without any conversion thereof and no payment or distribution
shall be made with respect thereto.
(c) Each share of Prime Common Stock issued and outstanding immediately
prior to the Effective Time, other than Objecting Prime Shares (as defined
below) and shares of Prime Common Stock cancelled pursuant to Section
2.7.2(b), shall, by virtue of the Prime Merger, and without any action on
the part of the holder thereof, be converted into the right to receive,
and, upon surrender of the Certificate or Certificates representing such
shares of Prime Stock, shall be exchangeable for, the number of shares of
Saratoga Common Stock determined by multiplying each share of Prime Stock
by the Prime Exchange Ratio as defined below. The Prime Exchange Ratio
shall be the quotient of (a) the number of shares of Saratoga Common Stock
which shall equal forty eight and seven hundred fifty-five thousandths
percent (48.755%) of the total amount of Saratoga Common Stock calculated
on a primary basis to be outstanding immediately after the Effective Time,
giving effect to the Reverse Stock Split and the Mergers and taking into
account any shares of Saratoga Common Stock which are not issued in the
Mergers and the Reverse Stock Split because they are attributable to
stockholders of Saratoga and former stockholders of OptiCare and Prime who
may have demanded and perfected statutory dissenters rights; divided by (b)
the number of outstanding shares of Prime Stock calculated on a primary
basis. Saratoga shall issue to holders of Prime Stock the number of shares
of Saratoga Common Stock calculated by applying the Prime Exchange Ratio,
in exchange for each such share of Prime Common Stock (the "Prime Merger
Consideration" and, together with the OptiCare Merger Consideration, the
"Merger Consideration").
(d) If between the date of this Agreement and the Effective Time, the
outstanding shares of Saratoga Common Stock shall be changed into a
different number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment (other than the Reverse Stock Split), or if a stock
dividend or extraordinary cash or other dividend thereon shall be declared
with a record date within such period, then the number of shares of
Saratoga Common Stock constituting the Prime Merger Consideration and the
Prime Exchange Ratio will be appropriately and proportionately adjusted so
that the number of such shares of Saratoga Common Stock (or such class of
shares into which shares of Saratoga Common Stock have been changed) that
will be issued in the Prime Merger will equal the number of such shares and
other consideration that holders of shares of Prime Common Stock would have
received pursuant to such classification, recapitalization, split-up,
combination, exchange of shares or readjustment had the record date
therefor been immediately following the Effective Time.
2.8 FRACTIONAL SARATOGA SHARES. No certificates or scrip representing
fractional shares of Saratoga Common Stock shall be issued in the Mergers. All
fractional shares of Saratoga Common Stock to which a holder of OptiCare Stock
or Prime Common Stock immediately prior to the Effective Time would otherwise
be entitled at the Effective Time shall be aggregated. If a fractional share
results from such aggregation, in lieu thereof Saratoga (or the Exchange Agent
on its behalf) shall pay to each person entitled to receive any such fractional
interest an amount in cash (without interest) equal to the closing sale price,
or if not available, closing bid price, on the Closing Date of one share of
Saratoga Common Stock multiplied by such fraction of a share.
2.9 DISSENTING SHARES. (a) Notwithstanding anything in this Agreement to
the contrary, shares of OptiCare Stock that are issued and outstanding
immediately prior to the Effective Time and which are held by holders who have
not voted such shares in favor of the OptiCare Merger, who shall
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have delivered, prior to any vote on the OptiCare Merger, a written notice of
interest to demand payment for such shares in the manner provided in Sections
33-855 through 33-872 of the CBCA and who, as of the Effective Time, shall not
have effectively withdrawn or lost such right to dissenters rights ("Objecting
OptiCare Shares") shall not be converted into or represent a right to receive
any portion of the OptiCare Merger Consideration pursuant to Section 2.7, but
the holders thereof shall be entitled only to such rights as are granted by
Sections 33-855 through 33-872 of the CBCA. Each holder of Objecting OptiCare
Shares who becomes entitled to payment for such shares pursuant to Sections
33-855 through 33-872 of the CBCA shall receive payment therefor from the
OptiCare Surviving Corporation in accordance with the CBCA; provided, however,
that if any such holder of Objecting OptiCare Shares shall have effectively
withdrawn such holder's demand for appraisal of such shares or lost such
holder's right to appraisal and payment of such shares under Sections 33-855
through 33-872 of the CBCA, such holder or holders (as the case may be) shall
forfeit the right to appraisal of such shares and each such share shall
thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the applicable portion of the OptiCare Merger Consideration,
as provided in Section 2.7, upon surrender of the Certificates evidencing such
shares.
(b) Notwithstanding anything in this Agreement to the contrary, shares of
Prime Common Stock that are issued and outstanding immediately prior to the
Effective Time and which are held by holders who have not voted such shares
in favor of the Prime Merger or consented thereto in writing and who shall
have demanded properly in writing appraisal for such shares in accordance
with Section 262 of the DGCL and who, as of the Effective Time, shall not
have withdrawn such demand or otherwise have forfeited appraisal rights
(collectively, the "Objecting Prime Shares") shall not be converted into or
represent the right to receive any portion of the Prime Merger
Consideration. Such holders shall be entitled to receive payment of the
appraised value of such shares, except that all Objecting Prime Shares held
by holders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares under such
Section 262 shall thereupon be deemed to have been converted into and to
have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the applicable portion of the Prime
Merger Consideration, as provided in Section 2.7, upon surrender of the
Certificates evidencing such shares.
(c) OptiCare and Prime shall give each other and Saratoga (i) prompt
notice of any demands for dissenters' rights or appraisal received by them,
withdrawals of such demands and any other instruments served pursuant to
the DGCL and the CBCA and received by OptiCare or Prime; and (ii) the
opportunity to participate in negotiations and proceedings with respect to
demands for appraisal under the DGCL and the CBCA. OptiCare and Prime shall
not, except with the prior written consent of each other and Saratoga or
except as mandated by applicable law, make any payment with respect to any
demands for appraisal, or offer to settle, or settle, any such demands.
2.10 CLOSING OF TRANSFER BOOKS. After the Effective Time, there shall be
no transfers on the stock transfer books of shares of OptiCare Stock or Prime
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates for shares of OptiCare Stock or
Prime Common Stock (other than Certificates evidencing Objecting OptiCare
Shares or Objecting Prime Shares) are presented to a Surviving Corporation,
they shall be cancelled and exchanged for certificates representing Saratoga
Common Stock as provided in this Article II.
2.11 EXCHANGE OF SHARES. (a) Prior to the Effective Time, Saratoga shall
designate a bank or trust company to act as Exchange Agent in the Mergers (the
"Exchange Agent"). Promptly after the Effective Time, Saratoga shall deliver to
the Exchange Agent certificates for the number of shares of Saratoga Common
Stock issuable in exchange for outstanding shares of OptiCare Stock and Prime
Common Stock pursuant to Section 2.7 and, upon request of the Exchange Agent,
such amounts of cash as shall be payable pursuant to Section 2.8.
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(b) Within ten (10) Business Days after the Effective Time, Saratoga
shall cause the Exchange Agent to mail to each record holder, as of the
Effective Time, of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of OptiCare Stock or
Prime Common Stock (each a "Certificate"), a customary form letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to a Certificate shall pass only, upon proper delivery of
a Certificate to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificate. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing the applicable number of shares of
Saratoga Common Stock and, if applicable under Section 2.8, cash and such
Certificate shall then be cancelled. No interest will be paid or accrued
upon the surrender of the Certificate. If Saratoga Common Stock is to be
issued to a Person other than the Person in whose name the Certificate
surrendered is registered, it shall be a condition of issue that the
Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the Person requesting such issue shall
pay transfer or other Taxes required by reason of the issue of Saratoga
Common Stock to a Person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Exchange
Agent and Saratoga that such Tax has been paid or is not applicable.
Saratoga shall pay all other charges and expenses, including those of the
Exchange Agent, in connection with the exchange of Saratoga Common Stock
for OptiCare Stock and Prime Common Stock. Until surrendered in accordance
with the provisions of this Section 2.11, each Certificate (other than
Certificates representing Objecting OptiCare Shares or Objecting Prime
Shares) shall represent for all purposes the right to receive the
applicable portion of the OptiCare Merger Consideration or the Prime Merger
Consideration, as the case may be, based on the number of shares of
OptiCare Stock or Prime Common Stock evidenced by such Certificate, without
any interest thereon.
(c) Any shares of Saratoga Common Stock or cash delivered or made
available to the Exchange Agent pursuant to this Section 2.11 and not
exchanged for Certificates within six (6) months after the Effective Time
pursuant to this Section 2.11 shall be returned, at Saratoga's request, by
the Exchange Agent to Saratoga, which shall thereafter act as Exchange
Agent subject to the rights of holders of unsurrendered Certificates under
this Article II and subject to applicable law. Notwithstanding the
foregoing, neither the Exchange Agent nor any party to this Agreement shall
be liable to a holder of shares of OptiCare Stock or Prime Common Stock for
any Saratoga Common Stock, dividends thereon, and cash for fractional
shares delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(d)In the event any Certificate for shares of OptiCare Stock or Prime
Common Stock shall have been lost, stolen or destroyed, the Exchange Agent
shall issue and pay in exchange for such lost, stolen or destroyed
Certificate, upon the making of an affidavit of that fact by the holder
thereof in form satisfactory to Saratoga, such shares of Saratoga Common
Stock and cash for fractional shares, if any, as may be required pursuant
to this Agreement; provided, however, that Saratoga may, in its discretion
and as a condition precedent to the issuance and payment thereof, require
the owner of such lost, stolen or destroyed Certificate to deliver a bond
in such sum as it may direct as indemnity against any claim that may be
made against Saratoga, OptiCare, Prime, the Prime Surviving Corporation,
the OptiCare Surviving Corporation, the Exchange Agent or any other party
with respect to the Certificate alleged to have been lost, stolen or
destroyed.
2.12 OPTIONS AND WARRANTS. (a) At or prior to the Effective Time, each of
Saratoga, Prime and OptiCare shall take all action necessary to cause as of the
Effective Time the assumption by Saratoga of, or the reissuance by Saratoga of
substitutes for, all of the following which remain outstanding as of the
Effective Time: (i) the options to purchase OptiCare Stock and Prime Common
Stock listed in the OptiCare Disclosure Schedule and the Prime Disclosure
Schedule, whether vested or unvested, and issued under OptiCare's Stock Option
Plans and Prime's Stock Option Plans described therein (the "Stock Option
Plans"); (ii) options to purchase OptiCare Stock and Prime Common Stock listed
in the OptiCare Disclosure Schedule and the Prime Disclosure Schedule
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pursuant to option agreements outside of the Stock Option Plans, except for the
Steve Waite Options; and (iii) the warrants to purchase OptiCare Stock listed
in the OptiCare Disclosure Schedule and issued pursuant to warrant agreements,
(collectively, the "Outstanding Options and Warrants," and each an "Outstanding
Option" or an "Outstanding Warrant"). To the fullest extent permitted under
applicable law and the applicable stock option agreements, the Stock Option
Plans and the warrant agreements, each of the Outstanding Options and
Outstanding Warrants shall be exchanged or substituted without any action on
the part of the holder thereof into an option or warrant to purchase shares of
Saratoga Common Stock as of the Effective Time. The number of shares of
Saratoga Common Stock that the holder of an assumed or substituted Outstanding
Option or Outstanding Warrant shall be entitled to receive upon the exercise of
such option or warrant shall be the same number of shares of Saratoga Common
Stock as the holder of such Outstanding Option or Outstanding Warrant would
have been entitled to receive pursuant to the Mergers had such holder exercised
such option or warrant in full immediately prior to the Effective Time. The
price per share of Saratoga Common Stock after the Effective Time shall be
equal to (x) the aggregate exercise price for the shares of OptiCare Stock or
Prime Common Stock otherwise purchasable pursuant to such Outstanding Option or
Outstanding Warrant divided by (y) the number of shares of Saratoga Common
Stock (including any fraction of a share) deemed purchasable pursuant to such
Outstanding Option or Outstanding Warrant. Other than as set forth in the
Outstanding Options and Warrants or as contemplated by this Agreement, the
assumption and substitution of options and warrants as provided herein shall
not give the holders of such options and warrants additional benefits or
additional vesting rights which they did not have immediately prior to the
Effective Time or relieve the holders of any obligations or restrictions
applicable to their options and warrants or the shares obtainable upon exercise
of their options and warrants. Only whole shares of Saratoga Common Stock shall
be issued upon exercise of any Outstanding Option or Outstanding Warrant, and
no certificates or scrip representing fractional shares of Saratoga Common
Stock and no cash in lieu of fractional shares shall be issued upon such
exercise. All fractional shares of Saratoga Common Stock which a holder of any
Outstanding Option or Outstanding Warrant would otherwise be entitled to
receive upon exercise thereof shall be aggregated at the time of such exercise.
If a fractional share results from such aggregation, in lieu thereof such
fraction shall be rounded up to one whole share of Saratoga Common Stock if it
is one-half or larger and shall be rounded down to zero and cancelled without
any payment or distribution with respect thereto if it is less than one-half.
Prior to the Effective Time, OptiCare and Prime shall take such additional
actions, if any, as are necessary under applicable law and the applicable
agreements and the Stock Option Plans to assure that each Outstanding Option
and Outstanding Warrant shall, from and after the Effective Time, represent
only the right to purchase, upon exercise, whole shares of Saratoga Common
Stock and cash in lieu of any fractional share in accordance with the
provisions of this Section 2.12.
(b) As soon as practicable after the Effective Time, Saratoga shall file
a registration statement on Form S-8 or a successor form under the
Securities Act with respect to the shares of Saratoga Common Stock subject
to the Outstanding Options and Warrants, to the extent that Form S-8 or
successor form is available to register the Outstanding Options and
Warrants, and shall use its Best Efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so
long as the Outstanding Options and Warrants remain outstanding.
2.13 DIVIDENDS. No dividends or other distributions that are otherwise
payable on the OptiCare Merger Consideration or the Prime Merger Consideration
shall be paid to Persons entitled to receive any of such Merger Consideration
until such Persons surrender their Certificates. Upon such surrender, there
shall be paid to the Person in whose name a portion of such Merger
Consideration shall be issued any dividends, without any interest thereon,
which shall have become payable with respect to such portion of such Merger
Consideration (less the amount of Taxes, if any, which may be required to be
withheld thereon) between the Effective Time and the time of such surrender.
After such surrender, there shall be paid to such Person any dividends on such
portion of such Merger Consideration with a record date prior to such surrender
and a payment date after such surrender and such payment shall be made on such
payment date.
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2.14 STOCKHOLDERS MEETINGS. Saratoga, OptiCare and Prime shall each take
all action necessary, in accordance with applicable law and its Certificate of
Incorporation and By-laws, to convene a special or annual meeting of the
holders of its capital stock entitled to vote as promptly as practicable for
the purpose of considering and taking action upon this Agreement. Subject to
the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, as advised by outside counsel, the board of
directors of Saratoga, OptiCare and Prime will each recommend that holders of
its capital stock vote in favor of and approve the respective Mergers and the
adoption of this Agreement at such meeting. At such meeting, all of the shares
of Saratoga, OptiCare and Prime capital stock entitled to vote then owned by
Saratoga, OptiCare, Prime, OptiCare Sub, Prime Sub, or any other Subsidiary of
any of them, or with respect to which Saratoga, OptiCare, Prime, OptiCare Sub,
Prime Sub, or any other Subsidiary of any of them holds the power to direct the
voting, will be voted in favor of approval of the respective Mergers and
adoption of this Agreement.
2.15 ASSISTANCE IN CONSUMMATION OF THE MERGERS. Each of Saratoga, OptiCare
Sub, Prime Sub, OptiCare and Prime shall provide all reasonable assistance to,
and shall cooperate with, each other to bring about the consummation of the
Mergers as soon as possible in accordance with the terms and conditions of this
Agreement. Saratoga shall cause OptiCare Sub and Prime Sub to perform all of
their obligations in connection with this Agreement.
2.16 TRANSFER TAXES. Saratoga, OptiCare and Prime shall cooperate in the
preparation, execution and filing of all Tax Returns, applications or other
documents regarding any Taxes which become payable in connection with the
Mergers other than transfer or stamp taxes payable in respect of transfers
pursuant to any delivery of shares of Saratoga Common Stock to be made to a
Person other than the registered holder of the Certificates surrendered in
exchange therefor in accordance with Section 2.11(b).
2.17 FURTHER ASSURANCES. If at any time after the Effective Time Saratoga,
the Prime Surviving Corporation or the OptiCare Surviving Corporation shall
consider or be advised that any further deeds, assignments or assurances in law
or any other acts are necessary, desirable or proper (a) to vest, perfect or
confirm, of record or otherwise, in it, the title to any property or right of
Prime, Prime Sub, OptiCare or OptiCare Sub acquired or to be acquired by reason
of, or as a result of, the respective Mergers, or (b) otherwise to carry out
the purposes of this Agreement, Prime, Prime Sub, OptiCare and OptiCare Sub
agree that Saratoga, the Prime Surviving Corporation or the OptiCare Surviving
Corporation, as appropriate, and its proper officers and directors may, shall
and will execute and deliver all such property, deeds, assignments and
assurances in law and do all other acts necessary, desirable or proper to vest,
perfect or confirm title to such property or right in Saratoga, the Prime
Surviving Corporation or the OptiCare Surviving Corporation, as the case may
be, and otherwise to carry out the purposes of this Agreement, and that the
proper officers and directors of Prime, Prime Sub, OptiCare and OptiCare Sub
and the proper officers and directors of Saratoga, the Prime Surviving
Corporation or the OptiCare Surviving Corporation, as the case may be, are
fully authorized in the name of Prime, Prime Sub, OptiCare or OptiCare Sub or
otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Each Party represents and warrants to each of the Other Parties as
follows:
3.1 ORGANIZATION AND GOOD STANDING. (a) Part 3.1 of the Representing
Party's Disclosure Schedule contains a complete and accurate list for the
Representing Party and its Subsidiaries of its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including in the case of its Subsidiaries the identity of each
stockholder and the number of shares held by each). Each of the Representing
Party and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all
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its obligations under Applicable Contracts. Each of the Representing Party and
its Subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such qualification. Part 3.1
of the Representing Party's Disclosure Schedule lists each such state or other
jurisdiction. Apart from its Subsidiaries, the Representing Party does not
directly or indirectly own, control or have any interest in any corporation,
company, general or limited partnership, limited liability company, joint
venture, trust, association or other entity.
(b) The Representing Party has delivered to the Other Parties copies of
the Organizational Documents of the Representing Party and its
Subsidiaries, as currently in effect.
3.2 AUTHORITY; NO CONFLICT. (a) The Representing Party has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
Contemplated Transactions have been duly authorized by the Representing Party's
board of directors. Except for the approval of the holders of a majority of the
shares of the Representing Party's common stock or, in the case of OptiCare,
the OptiCare Shares, no other corporate proceedings on the part of the
Representing Party are necessary to authorize this Agreement and the
Contemplated Transactions. This Agreement constitutes a valid and binding
obligation of the Representing Party enforceable in accordance with its terms
except as enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought.
(b) Except as set forth in Part 3.2 of the Representing Party's
Disclosure Schedule or in connection or compliance with the HSR Act, the
Securities Act, the Securities Exchange Act, the dissenters' rights
provisions of the DGCL and the CBCA, or the securities or blue sky laws or
regulations of the various states, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Representing Party, or
(B) any resolution adopted by the board of directors or the stockholders
of the Representing Party;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Representing
Party or any of its Subsidiaries, or any of the assets owned or used by
the Representing Party or any of its Subsidiaries, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by the Representing Party or any
of its Subsidiaries or that otherwise relates to the business of, or any
of the assets owned or used by, the Representing Party or any of its
Subsidiaries;
(iv) contravene, conflict with, or result in a violation or Breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance
of, or to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Representing
Party or any of its Subsidiaries.
Except for the registration statement and proxy statement referred to in
Section 5.2 and the notifications under the HSR Act referred to in Section 5.5
and except as set forth in Part 3.2 of the Representing Party's Disclosure
Schedule, neither the Representing Party nor any of its Subsidiaries is
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or will be required to give any notice to, make any report or other filing with
or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 CAPITALIZATION. (a) With respect to Prime, Prime represents and
warrants to the Other Parties that the authorized capital stock of Prime
consists of (i) 15,000,000 shares of Prime Common Stock, of which 7,291,081
shares are issued and outstanding; and (ii) 5,000,000 shares of Prime Class A
Preferred Stock, of which 8,000 shares are issued and outstanding (collectively
the "Prime Shares"). All of the outstanding Prime Shares have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in Part 3.3 of the Representing Party's Disclosure Schedule there are
no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of Prime. None of the outstanding equity
securities or other securities of Prime was issued in violation of the
Securities Act or any other Legal Requirement. Except as set forth in Part 3.3
of the Representing Party's Disclosure Schedule, Prime does not own, or have
any Contract to acquire, any equity securities or other securities of any
Person. As of the date of this Agreement, except as set forth in Part 3.3 of
the Representing Party's Disclosure Schedule, Prime does not have and is not
bound by any outstanding subscriptions, options, warrants, calls, stock
appreciation rights, commitments or agreements of any character calling for the
purchase or issuance of any Prime Shares or any other equity security of Prime
or any securities representing the right to purchase or otherwise receive any
Prime Shares.
(b) With respect to OptiCare, OptiCare represents and warrants to the
Other Parties that the authorized capital stock of OptiCare consists of (i)
1,200,000 shares of OptiCare Common Stock, of which no shares are issued
and outstanding; (ii) 160,000 shares of OptiCare Class A Preferred Stock,
of which 152,754 shares are issued and outstanding; and (iii) 640,000
shares of OptiCare Class B Preferred Stock, of which 221,046 shares are
issued and outstanding (collectively, the "OptiCare Shares"). All of the
outstanding OptiCare Shares have been duly authorized and validly issued
and are fully paid and nonassessable. Except as set forth in Part 3.3 of
the Representing Party's Disclosure Schedule there are no Contracts
relating to the issuance, sale, or transfer of any equity securities or
other securities of OptiCare. None of the outstanding equity securities or
other securities of OptiCare was issued in violation of the Securities Act
or any other Legal Requirement. Except as set forth in Part 3.3 of the
Representing Party's Disclosure Schedule, OptiCare does not own, or have
any Contract to acquire, any equity securities or other securities of any
Person. As of the date of this Agreement, except as set forth in Part 3.3
of the Representing Party's Disclosure Schedule, OptiCare does not have and
is not bound by any outstanding subscriptions, options, warrants, calls,
stock appreciation rights, commitments or agreements of any character
calling for the purchase or issuance of any OptiCare Shares or any other
equity security of OptiCare or any securities representing the right to
purchase or otherwise receive any OptiCare Shares.
(c) With respect to Prime Sub, Prime Sub represents and warrants to the
Other Parties that the authorized capital stock of Prime Sub consists of
2,000 shares of Prime Sub Common Stock, of which 100 shares are issued and
outstanding (the "Prime Sub Shares"). All of the outstanding Prime Sub
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Part 3.3 of the Representing Party's
Disclosure Schedule there are no Contracts relating to the issuance, sale,
or transfer of any equity securities or other securities of Prime Sub. None
of the outstanding equity securities or other securities of Prime Sub was
issued in violation of the Securities Act or any other Legal Requirement.
Except as set forth in Part 3.3 of the Representing Party's Disclosure
Schedule, Prime Sub does not own, or have any Contract to acquire, any
equity securities or other securities of any Person. As of the date of this
Agreement, except as set forth in Part 3.3 of the Representing Party's
Disclosure Schedule, Prime Sub does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, stock appreciation
rights, commitments or agreements of any character calling for the purchase
or issuance of any Prime Sub Shares or any other equity security of Prime
Sub or any securities representing the right to purchase or otherwise
receive any Prime Sub Shares.
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(d) With respect to OptiCare Sub, OptiCare Sub represents and warrants to
the Other Parties that the authorized capital stock of OptiCare Sub
consists of 2,000 shares of OptiCare Sub Common Stock, of which 100 shares
are issued and outstanding (the "OptiCare Sub Shares"). All of the
outstanding OptiCare Sub Shares have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in Part
3.3 of the Representing Party's Disclosure Schedule there are no Contracts
relating to the issuance, sale, or transfer of any equity securities or
other securities of OptiCare Sub. None of the outstanding equity securities
or other securities of OptiCare Sub was issued in violation of the
Securities Act or any other Legal Requirement. Except as set forth in Part
3.3 of the Representing Party's Disclosure Schedule, OptiCare Sub does not
own, or have any Contract to acquire, any equity securities or other
securities of any Person. As of the date of this Agreement, except as set
forth in Part 3.3 of the Representing Party's Disclosure Schedule, OptiCare
Sub does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, stock appreciation rights, commitments or
agreements of any character calling for the purchase or issuance of any
OptiCare Sub Shares or any other equity security of OptiCare Sub or any
securities representing the right to purchase or otherwise receive any
OptiCare Sub Shares.
(e) With respect to Saratoga, Saratoga represents and warrants to the
Other Parties that the authorized capital stock of Saratoga consists of
50,000,000 shares of Saratoga Common Stock, of which 3,465,292 shares are
issued and outstanding (the "Saratoga Shares") and 5,000,000 shares of
preferred stock, of which no shares are issued and outstanding. All of the
outstanding Saratoga Shares have been duly authorized and validly issued
and are fully paid and nonassessable. Except as set forth in Part 3.3 of
the Representing Party's Disclosure Schedule there are no Contracts
relating to the issuance, sale, or transfer of any equity securities or
other securities of Saratoga. None of the outstanding equity securities or
other securities of Saratoga was issued in violation of the Securities Act
or any other Legal Requirement. Except as set forth in Part 3.3 of the
Representing Party's Disclosure Schedule, Saratoga does not own, or have
any Contract to acquire, any equity securities or other securities of any
Person. As of the date of this Agreement, except as set forth in Part 3.3
of the Representing Party's Disclosure Schedule, Saratoga does not have and
is not bound by any outstanding subscriptions, options, warrants, calls,
stock appreciation rights, commitments or agreements of any character
calling for the purchase or issuance of any Saratoga Shares or any other
equity security of Saratoga or any securities representing the right to
purchase or otherwise receive any Saratoga Shares.
3.4 FINANCIAL STATEMENTS. The Representing Party has delivered to the
Other Parties or will deliver as soon as available: (a) consolidated balance
sheets of the Representing Party and its Subsidiaries as at December 31 in each
of the years 1996 and 1997, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the fiscal years then ended,
together with the report thereon of the independent auditor for such
Representing Party, and (b) a consolidated balance sheet of the Representing
Party and its Subsidiaries as at December 31, 1998 (including the notes
thereto, the "Balance Sheet"), and the related consolidated statements of
income, stockholders' equity, and cash flows for the fiscal year then ended,
together with the report thereon of the auditor for such Representing Party;
provided, however, that, notwithstanding the foregoing, the financial
statements of OptiCare referred to in this Section 3.4 are combined financial
statements of OptiCare and affiliate and not consolidated. Such financial
statements and notes fairly present, or when delivered to the Other Parties
will fairly present, the financial condition and the results of operations,
changes in stockholders' equity, and cash flow of the Representing Party and
its Subsidiaries as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP. The financial
statements referred to in this Section 3.4 reflect the consistent application
of such accounting principles throughout the periods involved. No financial
statements of any Person other than the Representing Party and its Subsidiaries
are required by GAAP to be included in the consolidated financial statements of
the Representing Party and its Subsidiaries. For purposes of this Agreement,
the term "Balance Sheet" means, in the cases of OptiCare and Saratoga, their
respective audited consolidated balance sheet, including the notes thereto, as
at December 31, 1998 and, in the case of Prime, its audited consolidated
balance sheet, including the notes thereto, as at December 31, 1997.
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3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Representing Party and its Subsidiaries, all of
which have been made available to the Other Parties, are complete and correct
and have been maintained in accordance with sound business practices, including
the maintenance of an adequate system of internal controls. The minute books of
the Representing Party and its Subsidiaries contain accurate and complete
records of all meetings held of, and corporate action taken by, the
stockholders, the boards of directors, and committees of the boards of
directors of the Representing Party and its Subsidiaries, and no meeting of any
such stockholders, board of directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of the
Representing Party and its Subsidiaries.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.6 of the Representing
Party's Disclosure Schedule contains a complete and accurate list of all real
property, leaseholds or other interests in real property owned by the
Representing Party and its Subsidiaries. The Representing Party and its
Subsidiaries each own (with good and marketable title in the case of real
property) all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible) that it purports to own, including all of the
properties and assets reflected in the Balance Sheet (except for assets held
under capitalized leases disclosed in Part 3.6 of the Representing Party's
Disclosure Schedule and personal property sold since the date of the Balance
Sheet in the Ordinary Course of Business and consistent with past practice),
and all of the properties and assets purchased or otherwise acquired by the
Representing Party and its Subsidiaries since the date of the Balance Sheet
(except for personal property acquired and sold since the date of the Balance
Sheet in the Ordinary Course of Business and consistent with past practice).
All material properties and assets reflected in the Balance Sheet are free and
clear of all Encumbrances except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the Balance Sheet as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection
with the purchase of property or assets after the date of the Balance Sheet
(such mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (c) liens for
current Taxes not yet due, and (d) with respect to real property (i) minor
imperfections of title, if any, none of which is material to the operations of
the Representing Party and (ii) zoning laws and land use restrictions that do
not impair the present or future use of the property subject thereto.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, structures,
furniture and equipment of the Representing Party and its Subsidiaries are in
good operating condition and repair, and are adequate for the uses to which
they are being put. The building, structures, furniture and equipment of the
Representing Party and its Subsidiaries are sufficient for the continued
conduct of the business of the Representing Party and its Subsidiaries after
the Closing in substantially the same manner as conducted prior to the Closing.
3.8 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.8 of the
Representing Party's Disclosure Schedule, each of the Representing Party and
its Subsidiaries has no liabilities or obligations of the type required to be
reflected on the Representing Party's Balance Sheet under GAAP (whether known
or unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet
and current liabilities incurred in the Ordinary Course of Business since the
date thereof.
3.9 TAXES. (a) Each of the Representing Party and its Subsidiaries has
filed or caused to be filed (on a timely basis) all Tax Returns that were
required to be filed by or with respect to it, pursuant to applicable Legal
Requirements. The Representing Party has delivered to the Other Parties copies
of, and Part 3.9 of the Representing Party's Disclosure Schedule contains a
complete and accurate list of, all such Tax Returns filed since the later of
December 31, 1995 or the incorporation of the Representing Party. The
Representing Party and its Subsidiaries have paid, or made provision for the
payment of, all Taxes that have or may have become due pursuant to those Tax
Returns or otherwise, or pursuant to any assessment received by the
Representing Party or its
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Subsidiaries, except such Taxes, if any, as are listed in Part 3.9 of the
Representing Party's Disclosure Schedule and are being contested in good faith
and as to which adequate reserves (determined in accordance with GAAP) have
been provided in the Balance Sheet.
(b) The United States federal and state income Tax Returns of the
Representing Party and its Subsidiaries were last audited by the IRS or
relevant state tax authorities for the taxable years set forth in Part 3.9
of the Representing Party's Disclosure Schedule. Part 3.9 of the
Representing Party's Disclosure Schedule contains a complete and accurate
list of the last audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each such audit. All
deficiencies proposed as a result of such audits have been paid, reserved
against, settled, or, as described in Part 3.9 of the Representing Party's
Disclosure Schedule, are being contested in good faith by appropriate
proceedings. Part 3.9 of the Representing Party's Disclosure Schedule
describes all adjustments to the United States federal income Tax Returns
filed by the Representing Party and its Subsidiaries for all taxable years
since the later of December 31, 1995 or the incorporation of the
Representing Party, and the resulting deficiencies proposed by the IRS.
Except as described in Part 3.9 of the Representing Party's Disclosure
Schedule, neither the Representing Party nor any of its Subsidiaries has
given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute
of limitations relating to the payment of Taxes of the Representing Party
or any of its Subsidiaries or for which the Representing Party or any of
its Subsidiaries may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
books of the Representing Party and its Subsidiaries are adequate
(determined in accordance with GAAP) and are at least equal to the
Liability of the Representing Party and its Subsidiaries for Taxes. There
exists no proposed tax assessment against the Representing Party and its
Subsidiaries except as disclosed in the Balance Sheet or in Part 3.9 of the
Representing Party's Disclosure Schedule. No consent to the application of
Section 341(f)(2) of the IRC has been filed with respect to any property or
assets held, acquired, or to be acquired by the Representing Party and its
Subsidiaries. All Taxes that each of the Representing Party and its
Subsidiaries is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by the Representing Party and its Subsidiaries
are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Representing Party and its Subsidiaries
after the date of this Agreement.
3.10 NO MATERIAL ADVERSE CHANGE. Except as described in the Representing
Party's Disclosure Schedule, since the date of the Balance Sheet, there has
been no change, event, occurrence or development in the business, operations,
properties, prospects, assets, or condition of the Representing Party and its
Subsidiaries that has had or could reasonably be foreseen to have a Material
Adverse Effect on the Representing Party or its ability to consummate the
Contemplated Transactions.
3.11A 401(K) PLAN. (a) Except as otherwise set forth in Part 3.11A of the
Representing Party's Disclosure Schedule, the Representing Party currently
maintains the 401(k) Plan set forth in Part 3.11A of the Representing Party's
Disclosure Schedule. The 401(k) Plan is the only Pension Benefit Plan intended
to be qualified under Section 401(a) or 403(a) of the IRC ever maintained by
the Representing Party or with respect to which the Representing Party has or
may have a Liability.
(b) The Representing Party has heretofore delivered to the Other Parties
with respect to the 401(k) Plan true and correct copies of the following:
(i) the 401(k) Plan including all amendments thereto through the
Closing Date;
(ii) each trust agreement and insurance Contract pertaining to the
investment of assets of the 401(k) Plan or the payment of benefits
thereunder, including all amendments thereto through the Closing Date;
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(iii) the most recent determination letter issued by the IRS with
respect to the 401(k) Plan and a copy of any demonstration or amendment
submitted in order to obtain the determination letter;
(iv) IRS Forms 5500, including applicable schedules thereto, filed
with respect to the 401(k) Plan for each of the three (3) most recent
plan years;
(v) all financial statements and accountant's opinions relating to the
401(k) Plan for each of the three (3) most recent plan years;
(vi) the summary plan description with respect to the 401(k) Plan and
any summaries of material modification;
(vii) copies of all correspondence with the IRS, the DOL or the SEC
regarding the 401(k) Plan;
(viii) summary annual reports for the 401(k) Plan for each of the
three (3) most recent plan years;
(ix) all administrative forms and related documents used in connection
with the administration of the 401(k) Plan;
(x) a copy of each Fiduciary liability insurance policy and each
fidelity bond covering any Fiduciary with respect to the 401(k) Plan;
(xi) names and addresses and each Contract with any investment
manager, investment adviser, trustee, independent Fiduciary,
administrator, consultant, auditor, actuary, law firm or record keeper
with respect to the 401(k) Plan;
(xii) a description of all claims threatened or pending with respect
to the 401(k) Plan and any facts that could give rise to any claims or
Liability against the 401(k) Plan or against the Representing Party with
respect to the 401(k) Plan;
(xiii) worksheets demonstrating the 401(k) Plan's compliance for the
three (3) most recent plan years with the following, if applicable: the
coverage requirements of Section 410(b) of the IRC; the actual deferral
percentage and actual contribution percentage tests of Sections 401(k)
and 401(m) of the IRC; the maximum contribution limitations of Section
415 of the IRC; and the top-heavy requirements of Section 416 of the
IRC; and
(c) The 401(k) Plan has complied with the applicable provisions of the
IRC from its initial effective date, except to the extent that any
noncompliance is not likely to have a Material Adverse Effect on the
Representing Party, the trust adopted in connection therewith is exempt
from Tax pursuant to Section 501(a) of the IRC, and all contributions ever
made to the 401(k) Plan and trust are deductible pursuant to Section 404 of
the IRC, all as evidenced by a favorable determination letter or letters
issued by the IRS with respect to the 401(k) Plan. The Representing Party
has no Knowledge of any facts, circumstances, actions, or failures to act
that would adversely affect such compliance or any such determination by
the IRS or would preclude the issuance of a favorable determination letter
by the IRS if the Representing Party were to seek a determination letter
from the IRS on the Closing Date with respect to the 401(k) Plan.
(d) The Representing Party and each Fiduciary with respect to the 401(k)
Plan has in all respects performed all obligations required to be performed
by it or them under the 401(k) Plan and is not in default under, or in
violation of, the 401(k) Plan, except to the extent any nonperformance or
default or violation is not likely to have a Material Adverse Effect on the
Representing Party, and the Representing Party has no Knowledge of any
default or violation under the terms of the 401(k) Plan, ERISA or the IRC
by any Person with respect to the 401(k) Plan, except to the extent such
default or violation is not likely to have a Material Adverse Effect on the
Representing Party.
(e) Since the initial effective date of the 401(k) Plan, there has not
been with respect to the 401(k) Plan: (i) any "prohibited transaction" as
defined in Section 406 of ERISA and Section
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4975 of the IRC; (ii) any amendments which decrease any accrued benefits,
eliminate or reduce any early retirement benefit or retirement-type
subsidy, or eliminate any optional form of benefit, in violation of Section
411(d)(6) of the IRC or 204(g) of ERISA; or (iii) any other event or
condition with respect to the 401(k) Plan creating a Liability under ERISA
or the IRC, except to the extent that such Liability is not likely to have
a Material Adverse Effect on the Representing Party.
(f) All contributions required to have been made under the 401(k) Plan
have been duly made.
(g) The 401(k) Plan has operated since its inception in compliance with
the reporting and disclosure requirements imposed under ERISA and the IRC,
except where noncompliance is not likely to result in a Material Adverse
Effect on the Representing Party.
(h) The 401(k) Plan is not liable for any Taxes.
(i) The 401(k) Plan is not currently under investigation, audit or review
by the IRS or the DOL, and the Representing Party has no Knowledge that any
such action is contemplated or under consideration.
(j) There are no Proceedings pending or threatened with respect to the
401(k) Plan and the Representing Party has no Knowledge of any facts that
could give rise to Proceedings against the 401(k) Plan, any Fiduciary with
respect to the 401(k) Plan or against the Representing Party with respect
to the 401(k) Plan.
3.11B WELFARE BENEFIT PLANS. (a) Set forth in Part 3.11B of the
Representing Party's Disclosure Schedule is a true and complete list of all
Welfare Benefit Plans maintained by the Representing Party or with respect to
which the Representing Party has or may have a Liability. Each Welfare Benefit
Plan has complied since its initial effective date with the applicable
provisions of the IRC and ERISA, except to the extent that any noncompliance is
not likely to have a Material Adverse Effect on the Representing Party. Any
trust adopted in connection with any Welfare Benefit Plan, including any VEBA,
has been exempt since its initial effective date from Federal income Taxes. All
contributions ever made to such Plans and trusts, if any, have been deductible
by the Representing Party for Federal income Tax purposes.
(b) The Representing Party has not at any time maintained, participated
in or contributed to a "multiple employer welfare arrangement", as defined
in Section 3(40) of ERISA, with respect to any of its Employees.
(c) The Representing Party has heretofore delivered to the Other Parties
with respect to its Welfare Benefit Plans true and correct copies of the
following:
(i) each Welfare Benefit Plan document and all amendments thereto;
(ii) each trust agreement, VEBA and insurance Contract including any
stop-loss policies and, with respect to any VEBA, IRS Form 1024 and any
determination letters obtained with respect to the VEBA;
(iii) IRS Forms 5500, if any, including applicable schedules thereto,
filed with respect to each of the Welfare Benefit Plans for each of the
three (3) most recent plan years;
(iv) all financial statements and accountant's opinions, if any,
relating to the Welfare Benefit Plans for each of the three (3) most
recent plan years;
(v) the summary plan description and summaries of material
modification with respect to each Welfare Benefit Plan;
(vi) copies of all correspondence with the IRS or the DOL regarding
any Welfare Benefit Plan;
(vii) summary annual reports, if any, for each of the Welfare Benefit
Plans for each of the three (3) most recent plan years;
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(viii) all administrative forms and related documents used in
connection with the administration of the Welfare Benefit Plans,
including the most recent sample COBRA notices and HIPAA notices and
certificates of creditable coverage;
(ix) each Fiduciary liability insurance policy and each fidelity bond
covering any Fiduciary with respect to the Welfare Benefit Plans;
(x) each Contract with any independent Fiduciary, consultant,
administrator or record keeper relative to any Welfare Benefit Plan;
(xi) a report of the claims experience under any self-insured Welfare
Benefit Plan for the three (3) most recent plan years; and
(xii) a description of all claims threatened or pending with respect
to any Welfare Benefit Plan and any facts that could give rise to any
claims or Liability against any Welfare Benefit Plan or against the
Representing Party with respect to any Welfare Benefit Plan other than
routine claims for benefits under any Welfare Benefit Plan.
(d) The Representing Party and each Fiduciary have performed all
obligations required to be performed under each Welfare Benefit Plan in
accordance with its terms and in compliance with the applicable
requirements of ERISA and the IRC, except to the extent that any
nonperformance or noncompliance is not likely to have a Material Adverse
Effect on the Representing Party, and the Representing Party has no
Knowledge of any default or violation under the terms of any Welfare
Benefit Plan, ERISA or the IRC by any Person with respect to any Welfare
Benefit Plan, except to the extent that any such default or violation is
not likely to have a Material Adverse Effect on the Representing Party.
(e) All contributions required to have been made under each of the
Welfare Benefit Plans have been duly made and all payments due to
third-party administrators or other service providers with respect to each
Welfare Benefit Plan have been made. The Representing Party's Financial
Statements reflect all contributions made by the Employees to any
self-insured Welfare Benefit Plans or made by the Representing Party on
behalf of the Employees to any unfunded or self-insured Welfare Benefit
Plan pursuant to a cafeteria plan under Section 125 of the IRC.
(f) Each Welfare Benefit Plan has operated since its inception in
compliance with the reporting and disclosure requirements imposed under
ERISA and the IRC except where noncompliance is not likely to have a
Material Adverse Effect on the Representing Party.
(g) No Welfare Benefit Plan is liable for any Taxes.
(h) The Representing Party and any member of the Representing Party's
Controlled Group have complied in all respects with the group health plan
continuation coverage requirements of COBRA and neither the Representing
Party nor any member of the Controlled Group is or could be liable for an
excise Tax under COBRA except to the extent that any noncompliance or
Liability is not likely to have a Material Adverse Effect on the
Representing Party.
(i) No Welfare Benefit Plan is currently under investigation, audit or
review by the IRS or the DOL and the Representing Party has no Knowledge
that any such action is contemplated or under consideration.
(j) There are no Proceedings pending or threatened with respect to any
Welfare Benefit Plan and the Representing Party has no Knowledge of any
facts that could give rise to any Proceedings against any Welfare Benefit
Plan, any Fiduciary with respect to any Welfare Benefit Plan or against the
Representing Party with respect to any Welfare Benefit Plan.
(k) The Representing Party does not maintain, nor has it ever maintained,
a Welfare Benefit Plan that provides benefits to current or former
Employees of the Representing Party beyond their termination of employment
other than on an employee-pay-all basis.
(l) The Representing Party does not maintain, nor has it ever maintained,
a Welfare Benefit Plan or any custom or policy that provides severance
benefits to former Employees of the Representing Party on account of their
termination of employment.
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(m) With respect to any Welfare Benefit Plan that is subject to HIPAA,
the Representing Party has complied in all respects with the requirements
of HIPAA, except to the extent that noncompliance is not likely to result
in a Material Adverse Effect on the Representing Party.
3.11C EMPLOYEE BENEFIT PLANS. (a) Set forth in Part 3.11C of the
Representing Party's Disclosure Schedule is a complete list of the Employee
Benefit Plans currently in effect, other than the Employee Benefit Plans set
forth in Parts 3.11A and 3.11B of the Representing Party's Disclosure Schedule.
(b) With respect to the Employee Benefit Plans set forth in Part 3.11C of
the Representing Party's Disclosure Schedule, the Representing Party has
heretofore delivered to the Other Parties true and correct copies of the
following:
(i) a list of each such Employee Benefit Plan maintained by the
Representing Party during the past three (3) years;
(ii) each valuation, if any, of the liabilities and the reserves
associated with each such Employee Benefit Plan consistent with
Statement of Financial Accounting Standards 87; and
(iii) a copy of each employee handbook or other document concerning
any such Employee Benefit Plan in effect during the past three (3)
years.
(c) The Representing Party has performed all obligations required to be
performed by it under the Employee Benefit Plans set forth in Part 3.11C of
the Representing Party's Disclosure Schedule and is not and will not be in
default under, or in violation of, said Employee Benefit Plans, except to
the extent any nonperformance or default or violation is not likely to have
a Material Adverse Effect on the Representing Party, and the Representing
Party has no Knowledge of any such default or violation by any other Person
with respect to such Employee Benefit Plans, except to the extent that such
default or violation is not likely to have a Material Adverse Effect on the
Representing Party.
(d) All contributions required to have been made under the Employee
Benefit Plans set forth in Part 3.11C of the Representing Party's
Disclosure Schedule have been duly made.
(e) No Employee Benefit Plan set forth in Part 3.11C of the Representing
Party's Disclosure Schedule is under investigation, audit or review by the
IRS, the DOL or the SEC and the Representing Party has no Knowledge that
any such action is under consideration.
(f) There are no Proceedings pending or threatened with respect to any
Employee Benefit Plan set forth in Part 3.11C of the Representing Party's
Disclosure Schedule and the Representing Party has no Knowledge of any
facts that could give rise to any Proceedings against any such Employee
Benefit Plan or against the Representing Party with respect to any such
Employee Benefit Plan.
(g) Each Employee Benefit Plan set forth in Part 3.11C of the
Representing Party's Disclosure Schedule has operated since its inception
in compliance with all applicable Laws except to the extent that any
noncompliance is not likely to have a Material Adverse Effect on the
Representing Party.
(h) Neither the execution of this Agreement or any of the documents
related to this Agreement nor the consummation of the transactions
contemplated hereby or by any of such related documents will:
(i) entitle any Person to severance pay or other compensation, other
than compensation for future services;
(ii) accelerate the time of payment or vesting, or increase the amount
of compensation or benefits due to any Person;
(iii) constitute or result in a prohibited transaction under Section
4975 of the IRC or Sections 406 or 407 of ERISA;
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(iv) constitute a "deemed severance" or "deemed termination" under any
Contract or under any State or Federal Law; or
(v) cause any amounts payable under any Employee Benefit Plan or
employment Contract to be non-deductible for Federal income Tax purposes
by reason of IRC Section 280G.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. (a)
Except as set forth in Part 3.12 of the Representing Party's Disclosure
Schedule and except where the existence of facts, actions or conditions
contrary to those set forth below in this subsection would not have a Material
Adverse Effect on the Representing Party, to the Knowledge of the Representing
Party:
(i) each of the Representing Party and its Subsidiaries is, and at all
times since the later of December 31, 1995 or the incorporation of the
Representing Party, has been, in full compliance with each Legal
Requirement that is or was applicable to it or to the conduct or
operation of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by the Representing Party and its Subsidiaries of, or a
failure on the part of the Representing Party and its Subsidiaries to
comply with, any Legal Requirement, or (B) may give rise to any
obligation on the part of the Representing Party and its Subsidiaries to
undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) each of the Representing Party and its Subsidiaries has not
received, at any time since the later of December 31, 1995 or the
incorporation of the Representing Party, any notice or other written
communication from any Governmental Body or any other Person regarding
(A) any actual, alleged, possible, or potential violation of, or failure
to comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of the Representing Party
and its Subsidiaries to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(b) Part 3.12 of the Representing Party's Disclosure Schedule contains a
complete and accurate list of each Governmental Authorization that is held
by the Representing Party or any of its Subsidiaries or that otherwise
relates to the business of, or to any of the assets owned or used by, the
Representing Party or any of its Subsidiaries. Each Governmental
Authorization listed or required to be listed in Part 3.12 of the
Representing Party's Disclosure Schedule is valid and in full force and
effect. Except as set forth in Part 3.12 of the Representing Party's
Disclosure Schedule and except where the existence of facts, actions or
conditions contrary to those set forth below in this subsection would not
have a Material Adverse Effect on the Representing Party, to the Knowledge
of the Representing Party:
(i) each of the Representing Party and its Subsidiaries is, and at all
times since the later of December 31, 1995 or the incorporation of the
Representing Party, has been, in full compliance with all of the terms
and requirements of each Governmental Authorization identified or
required to be identified in Part 3.12 of the Representing Party's
Disclosure Schedule;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or required to be
listed in Part 3.12 of the Representing Party's Disclosure Schedule, or
(B) result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in Part 3.12
of the Representing Party's Disclosure Schedule;
(iii) each of the Representing Parties and its Subsidiaries has not
received, at any time since the later of December 31, 1995 or the
incorporation of the Representing Party, any
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notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Governmental
Authorization;
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Part
3.12 of the Representing Party's Disclosure Schedule have been duly
filed on a timely basis with the appropriate Governmental Bodies, and
all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with
the appropriate Governmental Bodies;
(v) neither the Representing Party or any of its Subsidiaries, nor, to
the Knowledge of any of them, any employee or independent contractor of
the Representing Party or any Subsidiary has, in connection with the
business of the Representing Party or any Subsidiary, engaged in any
activities which are prohibited, or are cause for civil penalties or
mandatory or permissive exclusion from (A) any private payor program; or
(B) Medicare or Medicaid, under Sections 1320a-7, 1320a-7a, 1320a-7b, or
1395nn of Title 42 of the United States Code, the federal CHAMPUS
statute, or the regulations promulgated pursuant to such statutes or
related state or local statutes or regulations or by rules of
professional conduct, including, but not limited to, the following:
(1) 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;
(2) 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;
(3) presenting or causing to be presented a claim for reimbursement
for services under CHAMPUS, Medicare, Medicaid, or other state health
care program that is for an item or service that is known to be (x)
not provided as claimed or (y) false or fraudulent;
(4) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit
or payment on claimant's own behalf or on behalf of another, with
intent to fraudulently secure such benefit or payment;
(5) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in
kind (x) in return for referring an individual to a Person for the
furnishing or arranging for the furnishing of any item or service for
which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid, or other state health care program, or (y) in return for
purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering of any good, facility, service, or
item for which payment may be made in whole or part by CHAMPUS,
Medicare or Medicaid or other state health care program; or
(6) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a fact required to be stated
therein or necessary to make the statements contained therein not
misleading) of a material fact with respect to (x) the conditions or
operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or other state health care program
certification, or (y) information required to be provided under 42
U.S.C. Section 1320a-3.
(vi) neither the Representing Party or any of its Subsidiaries, nor,
to the Knowledge of any of them, any agent, Employee or independent
contractor of the Representing Party or
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any Subsidiary has, in connection with the business of the Representing
Party or any Subsidiary (A) made or agreed to make any contribution,
payment, or gift to any customer, supplier, landlord, political
candidate, governmental official, employee, or agent where either the
contribution, payment, or gift or the purpose thereof was illegal under
any law or regulation; (B) established or maintained any unrecorded fund
or asset for any purpose or made any false entries on its respective
books and records for any reason; (C) made or agreed to make any
contribution, or reimbursed any political gift or contribution made by
any other Person, to any candidate for federal, state, or local public
office in violation of any law or regulation; or (D) submitted any claim
for services rendered or reimbursement for expenses to any Person where
the services were not actually rendered or the expenses were not
actually incurred;
(vii) neither the Representing Party or any of its Subsidiaries, nor,
to the Knowledge of any of them, any agent, employee or independent
contractor of the Representing Party or any Subsidiary has, in
connection with the business of the Representing Party or any
Subsidiary, engaged in any activities which are prohibited under the
federal Controlled Substance Act, 21 U.S.C. Section 801 et seq. or the
regulations promulgated pursuant to such statute or any related state or
local statutes or regulations concerning the dispensing and sale of
controlled substances;
(viii) in connection with all Contracts with any federal, state, or
local governmental body or agency, the Representing Party and its
Subsidiaries have complied with all applicable accounting requirements
and procedures required by such body or agency;
(ix) all educational programs conducted by the Representing Party or
any Subsidiary which purport to be accredited have been accredited by
the Accreditation Council for Continuing Medical Education; and
(x) there is no legal or regulatory requirement that the shareholders,
or any of them, of the Representing Party or any Subsidiary be a
licensed physician in order to conduct its business as currently
conducted.
The Governmental Authorizations listed in Part 3.12 of the Representing
Party's Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit each of the Representing Party and its
Subsidiaries to lawfully conduct and operate its business in the manner it
currently conducts and operates such businesses and to permit it to own and use
its assets in the manner in which it currently owns and uses such assets.
3.13 LEGAL PROCEEDINGS; ORDERS. (a) Except as set forth in Part 3.13 of
the Representing Party's Disclosure Schedule, there is no pending Proceeding:
(i) that has been commenced by or against the Representing Party or
any of its Subsidiaries or that otherwise relates to or may affect the
business of, or any of the assets owned or used by, the Representing
Party or any of its Subsidiaries; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of the Representing Party, no such Proceeding has been
Threatened. The Representing Party has delivered to the Other Parties copies of
all pleadings, correspondence, and other documents relating to each Proceeding
listed in Part 3.13 of the Representing Party's Disclosure Schedule. Except as
listed in Part 3.15 of the Disclosure Schedule, the Proceedings will not have a
Material Adverse Effect on the business, operations, assets, condition, or
prospects of the Representing Party.
(b) Except as set forth in Part 3.13 of the Representing Party's
Disclosure Schedule:
(i) there is no Order to which the Representing Party, any of its
Subsidiaries, or any of the assets owned or used by the Representing
Party or any of its Subsidiaries, is subject;
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(ii) none of the Representing Party and its Subsidiaries is subject to
any Order that relates to the business of, or any of the assets owned or
used by, the Representing Party or any of its Subsidiaries; and
(iii) to the Knowledge of the Representing Party, no officer,
director, agent, or employee of the Representing Party or any of its
Subsidiaries is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Representing Party
or any of its Subsidiaries.
(c) Except as set forth in Part 3.13 of the Representing Party's
Disclosure Schedule:
(i) each of the Representing Party and its Subsidiaries is, and at all
times since the later of December 31, 1995 or the incorporation of the
Representing Party, has been, in full compliance with all of the terms
and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or
failure to comply with any term or requirement of any Order to which the
Representing Party, any of its Subsidiaries, or any of the assets owned
or used by the Representing Party or any of its Subsidiaries, is
subject; and
(iii) none of the Representing Party and its Subsidiaries has
received, at any time since the later of December 31, 1995 or the
incorporation of the Representing Party, any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any
Order to which the Representing Party, any of its Subsidiaries, or any
of the assets owned or used by the Representing Party or any of its
Subsidiaries, is or has been subject.
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part
3.14 of the Representing Party's Disclosure Schedule, since the date of the
Balance Sheet, each of the Representing Party and its Subsidiaries has
conducted its business only in the Ordinary Course of Business and there has
not been any:
(a) change in the authorized or issued capital stock of the Representing
Party or any of its Subsidiaries; grant of any stock option or right to
purchase shares of capital stock of the Representing Party or any of its
Subsidiaries; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Representing Party or any of its Subsidiaries of
any shares of any such capital stock; or declaration or payment of any
dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Representing Party
or any of its Subsidiaries;
(c) payment by the Representing Party or any of its Subsidiaries of any
bonuses or material increase in the salaries, or other compensation to any
stockholder, director, officer, or (except in the Ordinary Course of
Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other Employee Benefit Plan for or with any employees of the
Representing Party or any of its Subsidiaries;
(e) damage to or destruction or loss of any asset or property of the
Representing Party or any of its Subsidiaries, whether or not covered by
insurance, materially and adversely affecting the properties, assets,
business, financial condition, or prospects of the Representing Party or
any of its Subsidiaries;
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(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to the Representing Party or
any of its Subsidiaries of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the
Representing Party or any of its Subsidiaries or mortgage, pledge, or
imposition of any lien or other Encumbrance on any material asset or
property of the Representing Party or any of its Subsidiaries, including
the sale, lease, or other disposition of any of the Intellectual Property
Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Representing Party or any of its Subsidiaries in excess of $25,000;
(i) material change in the accounting methods used by the Representing
Party or any of its Subsidiaries;
(j) increase in the outstanding amount of indebtedness of the
Representing Party and its Subsidiaries, except as shown on the Balance
Sheet or incurred in the Ordinary Course of Business;
(k) giving of any guaranty or other undertaking of the indebtedness or
obligation of any Person, except in the Ordinary Course of Business; or
(l) agreement, whether oral or written, by the Representing Party or any
of its Subsidiaries to do any of the foregoing.
To the Knowledge of the Representing Party, no supplier, customer,
physician or physician group intends to cease doing business with, or
materially alter its business arrangements with, the Representing Party or any
of its Subsidiaries after the Mergers.
3.15 CONTRACTS; NO DEFAULTS. (a) Part 3.15(a) of the Representing Party's
Disclosure Schedule contains a complete and accurate list, and the Representing
Party has delivered to the Other Parties true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by the Representing Party or any of its
Subsidiaries of an amount or value in excess of $25,000;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Representing Party or any of its
Subsidiaries of an amount or value in excess of $25,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts
of the Representing Party or any of its Subsidiaries in excess of
$25,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal
property leases and installment and conditional sales agreements having
a value per item or aggregate payments of less than $25,000 and with
terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of
the Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of
a group of employees;
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(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Representing Party or any of its Subsidiaries with
any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Representing Party or
any of its Subsidiaries or any Affiliate of the Representing Party or
any of its Subsidiaries or limit the freedom of the Representing Party
or any of its Subsidiaries or any Affiliate of the Representing Party or
any of its Subsidiaries to engage in any line of business or to compete
with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking
by the Representing Party or any of its Subsidiaries to be responsible
for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
$25,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the
Representing Party or any of its Subsidiaries other than in the Ordinary
Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth in Part 3.15(b) of the Representing Party's
Disclosure Schedule, to the Knowledge of the Representing Party, no
officer, director, agent, employee, consultant, or contractor of the
Representing Party or any of its Subsidiaries is bound by any Contract that
purports to limit the ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the business of the Representing Party or
any of its Subsidiaries, or (B) assign to the Representing Party or any of
its Subsidiaries or to any other Person any rights to any invention,
improvement, or discovery.
(c) Except as set forth in Part 3.15(c) of the Representing Party's
Disclosure Schedule, each Contract identified or required to be identified
in Part 3.15(a) of the Representing Party's Disclosure Schedule is in full
force and effect and is valid and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.15(d) of the Representing Party's
Disclosure Schedule:
(i) each of the Representing Party and its Subsidiaries is, and at all
times since the later of December 31, 1995 or the incorporation of the
Representing Party has been, in full compliance with all applicable
terms and requirements of each Contract under which the Representing
Party or any of its Subsidiaries has or had any obligation or Liability
or by which the Representing Party or any of its Subsidiaries or any of
the assets owned or used by the Representing Party or any of its
Subsidiaries is or was bound;
(ii) each other Person that has or had any obligation or Liability
under any Contract under which the Representing Party or any of its
Subsidiaries has or had any rights is, and at all times since the later
of December 31, 1995 or the incorporation of the Representing Party has
been, in full compliance with all applicable terms and requirements of
such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or
result in a violation or Breach of, or give the Representing Party or
any of its Subsidiaries or other Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
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(iv) the Representing Party and its Subsidiaries have not given to or
received from any other Person, at any time since the later of December
31, 1995 or the incorporation of the Representing Party, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or Breach of, or default
under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
the Representing Party or any of its Subsidiaries under current or
completed Contracts with any Person and no such Person has made written
demand for such renegotiation, except in the case of Prime for
renegotiations and attempts to renegotiate Contracts which it intends to
replace with the Prime Physician Agreements and its Contract with Bank
Austria.
(f) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Representing Party and its Subsidiaries have
been entered into in the Ordinary Course of Business and have been entered
into without the commission of any act alone or in concert with any other
Person, or any consideration having been paid or promised, that is or would
be in violation of any Legal Requirement.
3.16 INSURANCE. (a) The Representing Party has delivered to the Other
Parties:
(i) true and complete copies of all policies of insurance to which the
Representing Party or any of its Subsidiaries is a party or under which
the Representing Party or any of its Subsidiaries, or any director of
the Representing Party or any of its Subsidiaries, is or has been
covered at any time within the three (3) years preceding the date of
this Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
(iii) any statement by the auditor of the Representing Party's
financial statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Part 3.16(b) of the Representing Party's Disclosure Schedule
describes:
(i) any self-insurance arrangement by or affecting the Representing
Party or any of its Subsidiaries, including any reserves established
thereunder;
(ii) any Contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by the Representing Party or any
of its Subsidiaries; and
(iii) all obligations of the Representing Party or any of its
Subsidiaries to third parties with respect to insurance (including such
obligations under leases and service agreements) and identifies the
policy under which such coverage is provided.
(c) Part 3.16(c) of the Representing Party's Disclosure Schedule sets
forth, by year, for the current policy year and each of the three (3)
preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for
an amount in excess of $25,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and
period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such
claims.
(d) Except as set forth on Part 3.16(d) of the Representing Party's
Disclosure Schedule:
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(i) All policies to which the Representing Party or any of its
Subsidiaries is a party or that provide coverage to the Representing
Party or any of its Subsidiaries, or any director or officer of the
Representing Party or any of its Subsidiaries:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially sound and
reputable;
(C) taken together, provide adequate insurance coverage for the
assets and the operations of the Representing Party and its
Subsidiaries;
(D) are sufficient for compliance with all Legal Requirements and
Contracts to which the Representing Party or any of its Subsidiaries
is a party or by which it is bound;
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions; and
(F) except for policies for worker's compensation insurance, copies
of which have been furnished to the Other Parties and loss experience
under which has been disclosed pursuant to Section 3.16(c), do not
provide for any retrospective premium adjustment or other
experienced-based Liability on the part of the Representing Party or
any of its Subsidiaries.
(ii) None of the Representing Party and its Subsidiaries has received
(A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no longer in full
force or effect or will not be renewed or that the issuer of any policy
is not willing or able to perform its obligations thereunder.
(iii) Each of the Representing Party and its Subsidiaries has paid all
premiums due, and has otherwise performed all of its respective
obligations, under each policy to which it is a party or that provides
coverage to it or a director thereof.
(iv) Each of the Representing Party and its Subsidiaries has given
notice to the insurer of all claims that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.17 of the
Representing Party's Disclosure Schedule and except where the existence of
facts, actions or conditions contrary to those set forth in Subsections (a) and
(b) of this Section would not have a Material Adverse Effect on the
Representing Party, to the Knowledge of the Representing Party:
(a) It and its Subsidiaries have complied at all times with applicable
Environmental Laws; no property (including buildings and any other
structures) currently or formerly owned or operated by it or any of its
Subsidiaries has been contaminated with, or has had any release of, any
Hazardous Substance in such form or substance so as to create any liability
for it or its Subsidiaries; it is not subject to liability for any
Hazardous Substance disposal or contamination on any other third-party
property; within the last six years, it and its Subsidiaries have not
received any notice, demand letter, claim or request for information
alleging any violation of, or liability of it or any of its Subsidiaries
under, any Environmental Law; it and its Subsidiaries are not subject to
any order, decree, injunction or other agreement with any Governmental
Authority or any third party relating to any Environmental Law; it and its
Subsidiaries are not aware of any reasonably likely liability relating to
environmental circumstances or conditions (including the presence of
asbestos, underground storage tanks, lead products or polychlorinated
biphenyls) involving it or one of its Subsidiaries, or any currently or
formerly owned or operated property; and it has made available to the other
Parties copies of all environmental reports, studies, sampling data,
correspondence, filings and other environmental information in its
possession or reasonably available to it relating to it or one of its
Subsidiaries or any currently or formerly owned or operated property.
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(b) Neither the Representing Party or any of its Subsidiaries, nor to
their Knowledge, any agent, employee, or independent contractor of the
Representing Party or any Subsidiary is, in connection with the business of
the Representing Party or any Subsidiary, in violation of, or the subject
of any Proceeding by any governmental authority under, the Medical Waste
Tracking Act, 42 U.S.C. Section 6992 et seq., or any applicable state or
local government statute, ordinance or regulation dealing with the disposal
of medical wastes (collectively, "Medical Waste Laws"). The Representing
Party, its Subsidiaries, and, to their Knowledge, the agents, employees and
independent contractors of the Representing Party and its Subsidiaries, as
it relates to the business of the Representing Party or any Subsidiary, are
in compliance with any permits required by the Medical Waste Laws relating
to medical waste disposal. All disposal of medical waste by the
Representing Party, its Subsidiaries, and, to their Knowledge, the agents,
employees and independent contractors of the Representing Party and its
Subsidiaries has been in compliance with the Medical Waste Laws, except
where the failure to so comply would not have a Material Adverse Effect on
the Representing Party.
3.18 EMPLOYEES. (a) Part 3.18 of the Representing Party's Disclosure
Schedule contains a complete and accurate list of the following information for
each employee or director of the Representing Party and its Subsidiaries
earning One Hundred Thousand Dollars ($100,000) per year or more, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1998; vacation accrued; and service credited for purposes of vesting
and eligibility to participate under the Representing Party's and its
Subsidiaries' pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Benefit Plan or
any director plan.
(b) No employee or director of the Representing Party or any of its
Subsidiaries is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee or director of the
Representing Party or any of its Subsidiaries, or (ii) the ability of the
Representing Party or any of its Subsidiaries to conduct its business,
including any Proprietary Rights Agreement with the Representing Party or
any of its Subsidiaries by any such employee or director. To the Knowledge
of the Representing Party, no director, officer, or other key employee of
the Representing Party or any of its Subsidiaries intends to terminate his
employment with the Representing Party or any of its Subsidiaries.
3.19 LABOR RELATIONS; COMPLIANCE. Neither the Representing Party nor any
of its Subsidiaries has been or is a party to any collective bargaining or
other labor Contract. There has not been, there is not presently pending or
existing, and, to the Knowledge of the Representing Party, there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Representing
Party or any of its Subsidiaries relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or other labor or employment
dispute against or affecting any of the Representing Party and its Subsidiaries
or their premises, or (c) any application for certification of a collective
bargaining agent. No event has occurred or circumstance exists that could
provide the Basis for any work stoppage or other labor dispute. There is no
lockout of any employees by the Representing Party or any of its Subsidiaries,
and no such action is contemplated by the Representing Party and its
Subsidiaries. Each of the Representing Party and its Subsidiaries has complied
in all respects with all Legal Requirements relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. Neither the Representing
Party nor any of its Subsidiaries is liable for the payment of any
compensation, damages, Taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
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3.20 INTELLECTUAL PROPERTY. Part 3.20 of the Representing Party's
Disclosure Schedule lists all patents, trademarks, trade names, service marks,
trade secrets, copyrights, applications and licenses and other proprietary
intellectual property rights and licenses which are owned by the Representing
Party or any of its Subsidiaries and which are material to the businesses of
the Representing Party and its Subsidiaries (the "Intellectual Property") and
all licenses and other agreements pertaining to the Intellectual Property; the
Representing Party or a Subsidiary owns or has valid rights to use the
Intellectual Property; and the Representing Party does not have any Knowledge
of any conflict with the rights of it and its Subsidiaries therein or any
Knowledge of any conflict by them with the rights of others therein which have
had, or would reasonably be expected to have, a Material Adverse Effect on the
Representing Party. Neither the Mergers nor the Contemplated Transactions will
have a Material Adverse Effect on the rights of the Representing Party or any
of its Subsidiaries in respect of any of the Intellectual Property.
3.21 CERTAIN PAYMENTS. None of the Representing Party, any of its
Subsidiaries, any director, officer, agent, or employee of the Representing
Party or any of its Subsidiaries, or, to the Knowledge of the Representing
Party or any of its Subsidiaries, any other Person associated with or acting
for or on behalf of the Representing Party or any of its Subsidiaries, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions, or for special
concessions already obtained, for or in respect of the Representing Party or
any of its Subsidiaries or any Affiliate of the Representing Party or any of
its Subsidiaries, or (iv) in violation of any Legal Requirement, or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Representing Party and its Subsidiaries.
3.22 RELATIONSHIPS WITH RELATED PERSONS. Except as set forth in Part 3.22
of the Representing Party's Disclosure Schedule, no Related Person of the
Representing Party or any of its Subsidiaries has, or since the first day of
the next to last completed fiscal year of the Representing Party has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the business of the Representing Party
and its Subsidiaries. No Related Person of the Representing Party or any of its
Subsidiaries is, or since the first day of the next to last completed fiscal
year of the Representing Party has owned (of record or as a beneficial owner)
an equity interest or any other financial or profit interest in, a Person that
has (i) had business dealings or a material financial interest in any
transaction with the Representing Party or any of its Subsidiaries, other than
business dealings or transactions conducted in the Ordinary Course of Business
with the Representing Party and its Subsidiaries at substantially prevailing
market prices and on substantially prevailing market terms, or (ii) engaged in
competition with the Representing Party or any of its Subsidiaries with respect
to any line of the products or services of the Representing Party and its
Subsidiaries in any market presently served by the Representing Party or any of
its Subsidiaries (a "Competing Business"), except for less than one percent
(1%) of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market.
Except as set forth in Part 3.22 of the Representing Party's Disclosure
Schedule, no Related Person of the Representing Party or any of its
Subsidiaries is a party to any Contract with, or has any claim or right
against, the Representing Party or any of its Subsidiaries.
3.23 BROKERS OR FINDERS. Except as set forth in Part 3.23 of the
Representing Party's Disclosure Schedule, the Representing Party and its
Subsidiaries and agents have incurred no obligation or Liability, contingent or
otherwise, or taken any action which would give rise to a valid claim against
any Party, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
3.24 SEC FILINGS. This representation and warranty is made by Saratoga
only to OptiCare and Prime: Saratoga has filed with the SEC all forms, reports
and documents required to be filed by it with the SEC since January 1, 1997 and
has made available to each of OptiCare and Prime true and complete copies of
its (i) Annual Report on Form 10-K for the year ended December 31, 1997, as
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filed with the SEC; and (ii) all other reports, statements and registration
statements (including Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K) filed by it with the SEC since December 31, 1997 (collectively, the
"SEC Filings"). As of their respective dates, the SEC Filings (including all
exhibits and schedules thereto and documents incorporated by reference
therein), did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3.25 DISCLOSURE. (a) No representation or warranty of the Representing
Party in this Agreement and no statement in the Representing Party's Disclosure
Schedule omits to state a material fact necessary to make the statements herein
or therein, in the light of the circumstances in which they were made, not
misleading.
(b) No notice given pursuant to this Agreement will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in the light of the circumstances in which
they were made, not misleading.
(c) There is no fact known to the Representing Party that has specific
application to the Representing Party and its Subsidiaries (other than
general economic or industry conditions) and that has had, or, as far as
the Representing Party can reasonably foresee, will have a Material Adverse
Effect on the Representing Party that has not been set forth in this
Agreement or the Representing Party's Disclosure Schedule.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGERS
4.1 CONDUCT OF BUSINESS PENDING THE MERGERS. Prior to the Effective Date,
except as specifically provided in this Agreement, unless the Parties shall
otherwise agree in writing:
(a) except as set forth in Part 4.1(a) of the Saratoga Disclosure
Schedule, the OptiCare Disclosure Schedule and the Prime Disclosure
Schedule, each of Saratoga, OptiCare and Prime shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted, and shall, and shall cause its Subsidiaries to, use their
reasonable efforts to preserve intact their present business organizations
and preserve their relationships with physicians, customers, suppliers and
others having business dealings with them to the end that their goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Each of
Saratoga, OptiCare and Prime shall, and shall cause its Subsidiaries to,
(i) maintain insurance coverages and its books, accounts and records in the
usual manner consistent with prior practices; (ii) comply in all material
respects with all applicable Legal Requirements; (iii) maintain and keep
its properties and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (iv) perform in all material respects
its obligations under all material Contracts and commitments to which it is
a party or by which it is bound;
(b) except as set forth in Part 4.1(b) of the Saratoga Disclosure
Schedule, the OptiCare Disclosure Schedule and the Prime Disclosure
Schedule, and except as required by this Agreement, each of Saratoga,
OptiCare and Prime shall not and shall not propose to (i) sell or pledge or
agree to sell or pledge any capital stock owned by it in any of its
Subsidiaries, (ii) amend its Certificate of Incorporation or By-laws, (iii)
split, combine or reclassify its outstanding capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of its capital stock, or declare,
set aside or pay any dividend or other distribution payable in cash, stock
or property, or (iv) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of its
capital stock;
(c) except as set forth in Part 4.1(c) of the Saratoga Disclosure
Schedule, the OptiCare Disclosure Schedule and the Prime Disclosure
Schedule, each of Saratoga, OptiCare and Prime
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shall not, nor shall it permit any of its Subsidiaries to, (i) issue,
deliver or sell or agree to issue, deliver or sell any additional shares
of, or rights of any kind to acquire any shares of, its capital stock of
any class, any indebtedness having the right to vote on matters on which
its shareholders may vote, or any option, rights or warrants to acquire, or
securities, convertible into, shares of capital stock; (ii) acquire, lease
or dispose of or agree to acquire, lease or dispose of any capital assets
or any other assets other than in the Ordinary Course of Business; (iii)
incur additional indebtedness or encumber or grant a security interest in
any asset or enter into any other material transaction other than in each
case in the Ordinary Course of Business; (iv) acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any Person; or (v)
enter into any Contract, commitment or arrangement with respect to any of
the foregoing;
(d) except as disclosed in Part 4.1(d) of the Saratoga Disclosure
Schedule, the OptiCare Disclosure Schedule and the Prime Disclosure
Schedule, each of Saratoga, OptiCare and Prime shall not, nor shall it
permit any of its Subsidiaries to, except as required to comply with
applicable law and except as provided in Section 6.1(n), enter into a new
(or amend any existing) Employee Benefit Plan or any new (or amend any
existing) employment, severance or consulting agreement, grant any general
increase in the compensation of directors, officers or Employees (including
any such increase pursuant to any bonus, pension, profit-sharing or other
plan or commitment) or grant any increase in the compensation payable or to
become payable to any director, officer or Employee, except in any of the
foregoing cases in accordance with preexisting contractual provisions or in
the Ordinary Course of Business;
(e) each of Saratoga, OptiCare and Prime shall not, and shall not permit
any of its Subsidiaries to, settle any material claim, action or Proceeding
involving money damages or waive or release any material rights or claims,
except in the Ordinary Course of Business;
(f) each of Saratoga, OptiCare and Prime shall not, and shall not permit
any of its Subsidiaries to, change its methods of accounting in effect at
December 31, 1998, except as required by changes in GAAP as concurred in by
its independent auditors, or change any of its methods of reporting income
and deductions for Federal income tax purposes from those employed in the
preparation of the Federal income tax returns of it and its Subsidiaries
for the taxable years ending December 31, 1998, 1997 and 1996, except as
required by changes in applicable Legal Requirements;
(g) each of Saratoga, OptiCare and Prime shall not, and shall not permit
any of its Subsidiaries to, take any action that is intended or may
reasonably be expected to result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect at any time prior to the Effective Time, or in any of the
conditions to the Mergers set forth in Article VI not being satisfied or in
a violation of any provision of this Agreement, except, in every case, as
may be required by applicable Legal Requirements; and
(h) each of Saratoga, OptiCare and Prime shall not, and shall not permit
any of its Subsidiaries to, agree to, or make any commitment to, take any
of the actions prohibited by this Section 4.1.
4.2 CONDUCT OF BUSINESS OF PRIME SUB AND OPTICARE SUB. During the period
from the date of this Agreement to the Effective Time, neither Prime Sub nor
OptiCare Sub shall engage in any activities of any nature except as provided in
or contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 ACCESS AND INFORMATION. Each of the Parties and their respective
Subsidiaries shall afford to the Other Parties and to the Other Parties'
Representatives reasonable access during normal business hours (and at such
other times as the Parties may mutually agree) throughout the period prior to
the Effective Time to all of its properties, books, Contracts, commitments,
records and
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Employees and, during such period, each shall furnish promptly to the other (a)
a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (b) all
other information concerning its business, properties and Employees as the
other may reasonably request. Each of the Parties shall hold, and shall cause
their respective Employees and Representatives to hold, in confidence all such
information in accordance with the terms of the Confidentiality Agreement dated
November 5, 1998 between them.
5.2 PROXY STATEMENT. The Parties shall cooperate and Saratoga shall
promptly prepare and file with the SEC as soon as practicable, a proxy
statement with respect to Saratoga's stockholder meeting referred to in Section
2.15 and a registration statement on Form S-4 with respect to the Common Stock
of Saratoga to be issued in the Mergers (the "Proxy Statement/Prospectus"),
which shall comply as to form in all material respects with the applicable
provisions of the Securities Act, the Securities Exchange Act and the rules and
regulations thereunder. OptiCare and Prime shall each pay in advance, at the
request of Saratoga, one-half of the filing fees and the reasonable printing,
mailing and other expenses related to the registration statement and the Proxy
Statement/Prospectus. Saratoga shall use its Best Efforts, and the other
Parties will cooperate with Saratoga, to have the Proxy Statement/Prospectus
cleared and made effective by the SEC as promptly as practicable. Saratoga also
shall use its Best Efforts to obtain all necessary state securities law or
"Blue Sky" permits and approvals required to carry out the Contemplated
Transactions. Saratoga shall, as promptly as practicable, provide copies of any
written comments received from the SEC with respect to the Proxy
Statement/Prospectus to the Other Parties and advise the Other Parties of any
oral comments with respect to the Proxy Statement/Prospectus received from the
SEC. The Parties agree that none of the information supplied or to be supplied
by them for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the Shareholder Meetings, will contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. For purposes
of the foregoing, it is understood and agreed that information concerning or
related to each Party and its Shareholder Meeting will be deemed to have been
supplied by such Party. Saratoga will provide the Other Parties with a
reasonable opportunity to review and comment on any amendment or supplement to
the Proxy Statement/Prospectus prior to filing it with the SEC, and will
provide the Other Parties with a copy of all such filings made with the SEC. No
amendment or supplement to the information supplied by any Party for inclusion
in the Proxy Statement/Prospectus shall be made without the approval of such
Party, which approval shall not be unreasonably withheld or delayed.
5.3 EMPLOYEE MATTERS. As of the Effective Time, the Employees of Saratoga
shall resign and the Employees of OptiCare and Prime and each of their
Subsidiaries shall continue employment with the OptiCare Surviving Corporation
or the Prime Surviving Corporation, as the case may be, and each of their
Subsidiaries, respectively, in the same positions and at the same level of
wages and/or salary and without having incurred a termination of employment or
separation from service; provided, however, except as may be specifically
required by applicable law or any Contract, such Surviving Corporations and
their Subsidiaries shall not be obligated to continue any employment
relationship with any Employee for any specific period of time. Except with
respect to the Stock Option Plans to be terminated as provided by Section 2.12,
as of the Effective Time, such Surviving Corporations shall be the sponsor of
the Employee Benefit Plans sponsored by the respective Parties immediately
prior to the Effective Time, and such Surviving Corporations and their
Subsidiaries shall satisfy all obligations and Liabilities under such Employee
Benefit Plans, provided that nothing herein shall prevent the Surviving
Corporations and their Subsidiaries from modifying or terminating such Employee
Benefit Plans from time to time. To the extent any Employee Benefit Plan is
made available to the Employees of the Surviving Corporations or their
Subsidiaries: (a) service with Prime or OptiCare and their Subsidiaries by any
Employee prior to the Effective Time shall be credited for eligibility and
vesting purposes under such plan, and (b) with respect to any Welfare Benefit
Plans to which such Employees may become eligible, such plans shall provide
credit for any co-payments or deductibles by such Employees and waive all
preexisting condition exclusions and waiting periods, other than limitations or
waiting periods that have not been satisfied under any Welfare Benefit Plans
maintained by the Parties and their Subsidiaries for their Employees prior to
the Effective Date.
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5.4 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) The Parties
agree that all rights to indemnification existing in favor of the directors,
officers or Employees of Saratoga, OptiCare, Prime and the Surviving
Corporations (the "Indemnified Parties") as provided in their respective
Certificates of Incorporation or By-laws, as in effect as of the date hereof,
with respect to matters occurring prior to and through the Effective Time,
shall survive the Mergers and shall continue in full force and effect for a
period of not less than six (6) years from the Effective Time. The Parties
agree that Saratoga shall, and shall cause the Surviving Corporations to,
obtain and maintain in effect for not less than six (6) years after the
Effective Time the current policies of directors' and officers' liability
insurance maintained by OptiCare and Prime, respectively, with respect to
matters occurring on or prior to the Effective Time; provided, however, that
the Surviving Corporations may substitute therefor policies of at least the
same coverage (with carriers comparable to OptiCare's and Prime's existing
carriers) containing terms and conditions which are no less advantageous to the
Indemnified Parties; and provided, further, that the Surviving Corporations
shall not be required in order to maintain or procure such coverage to pay an
annual premium in excess of an amount to be mutually agreed upon by the Parties
before the Effective Time (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, the Surviving Corporations shall only be
required to obtain as much coverage as can be obtained by paying an annual
premium equal to the Cap. In addition, OptiCare and Prime will investigate,
with Saratoga's cooperation, the availability and cost of acquiring directors'
and officers' liability insurance for Saratoga which will provide coverage for
matters occurring on or prior to the Effective Time and, if OptiCare and Prime
then decide in their sole discretion that such insurance should be purchased,
they will agree to Saratoga purchasing such insurance in such amounts, for such
time and on such terms as they, in their sole discretion, may determine.
(b) In the event that any action, suit, Proceeding or investigation
relating hereto or to the Contemplated Transactions is commenced, whether
before or after the Effective Time, the Parties agree to cooperate and use
their respective reasonable efforts to vigorously defend against and
respond thereto.
(c) In the event Saratoga or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Saratoga assume the obligations set forth in this Section 5.4.
(d) The provisions of this Section 5.4 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties and his or
her heirs, executors, administrators, and legal representatives.
5.5 HSR ACT. The Parties shall use their Best Efforts to file as soon as
practicable notifications required under the HSR Act (and not heretofore
obtained) in connection with the Mergers and the transactions contemplated
hereby, and to respond as promptly as practicable to any inquiries received
from the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters. Each Party agrees not to, and
will cause its Representatives not to, initiate substantive discussions with
representatives of the applicable antitrust regulatory authorities concerning
their review of the Mergers and the Contemplated Transactions under the HSR Act
without the prior consent of the Other Parties hereto, and will not engage in
substantive discussions with such authorities without notifying the Other
Parties hereto promptly thereafter of the substance and content of such
discussions.
5.6 ADDITIONAL AGREEMENTS. (a) Subject to the terms and conditions herein
provided, each of the Parties hereto agrees to use its Best Efforts to take, or
cause to be taken, all actions and
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to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Contemplated Transactions, including using their Best Efforts to obtain all
necessary waivers, Consents and approvals to effect all necessary registrations
and filings (including, but not limited to, filings under the HSR Act and with
the SEC and all other applicable Governmental Bodies) and to lift any
injunction to the Mergers (and, in such case, to proceed with the Mergers as
expeditiously as possible).
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Saratoga, OptiCare, Prime, OptiCare
Sub, Prime Sub and the Surviving Corporations shall take all such necessary
action.
5.7 ADVICE OF CHANGES; SEC FILINGS. OptiCare and Prime shall confer on a
reasonably regular basis on operational matters. The Parties shall promptly
advise each other orally and in writing of any change or event that has had, or
could reasonably be expected to have, a Material Adverse Effect on them. The
Parties shall promptly provide each other (or their respective counsel) copies
of all filings made by such party with the SEC or any Governmental Body in
connection with this Agreement and the Contemplated Transactions.
5.8 RESTRUCTURING OF MERGER. Upon the mutual agreement of the Parties, (a)
the Prime Merger shall be restructured in the form of a forward subsidiary
merger of Prime into Prime Sub, with Prime Sub being the surviving corporation,
and/or (b) the OptiCare Merger shall be restructured in the form of a merger of
Saratoga into OptiCare, with OptiCare being the surviving corporation, or in
the form of a forward or reverse subsidiary merger of OptiCare with another
Subsidiary of Saratoga. In such event, this Agreement shall be deemed
appropriately modified to reflect such form or forms of merger.
5.9 STATE TAKEOVER STATUTES. Each Party will take all steps necessary to
exempt (or continue the exemption of) the Mergers and the transactions
contemplated hereby from, and challenge the validity of, any applicable state
takeover law, as now or hereafter in effect.
5.10 AFFILIATE AGREEMENTS. OptiCare and Prime have each included in their
respective Disclosure Schedules a list of each Person that, to its Knowledge,
is or is reasonably likely to be, as of the date of its stockholder meeting
referred to in Section 2.15, deemed to be an "affiliate" of it (each, a "Rule
145 Affiliate") as that term is used in Rule 145 under the Securities Act or
SEC Accounting Series Releases 130 and 135. OptiCare and Prime will each
deliver to Saratoga an updated list of its Rule 145 Affiliates prior to the
Closing Date. OptiCare and Prime will each use their Best Efforts to cause each
person who may be deemed a Rule 145 Affiliate of it to execute and deliver to
it and Saratoga on or before the Closing Date an agreement in the form of
Exhibit A.
5.11 ACCOUNTANTS' LETTERS. Saratoga, OptiCare and Prime shall use its Best
Efforts to cause its independent accountants to deliver to each of them, and to
the directors and officers of Saratoga who sign its Registration Statement on
Form S-4, a letter (1) dated the date on which the Registration Statement shall
become effective and (2) a date shortly before the Effective Time, and
addressed to such other Parties and such directors and officers, in form and
substance customary for "comfort" letters delivered by independent accountants
in accordance with Statement of Accounting Standards No. 72.
5.12 SARATOGA VOTING. Saratoga shall vote the shares of OptiCare Sub and
Prime Sub in favor of the OptiCare Merger and the Prime Merger, respectively.
5.13 ACTION BY THE OFFICERS, DIRECTORS, ETC. OptiCare, Prime and Saratoga
shall each use their respective Best Efforts to cause their respective
directors and executive officers to vote any shares held by them in favor of
the Prime Merger, the OptiCare Merger, and the Reverse Stock Split, as the case
may be.
5.14 MEETINGS OF STOCKHOLDERS. Promptly after the date hereof, each of
Prime, OptiCare and Saratoga will take all action necessary in accordance with
the DGCL and CBCA, as the
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case may be, and their respective Certificates of Incorporation and By-laws to
convene a stockholder meeting to be held as promptly as practicable, and in any
event (to the extent permissible under applicable law) within 45 days after the
declaration of effectiveness of the Registration Statement, for the purpose of
voting upon this Agreement. The Parties will consult with each other and use
their respective Best Efforts to hold their stockholders meetings on the same
day. The Parties will use their respective Best Efforts to solicit from their
respective stockholders proxies in favor of the adoption and approval of all
matters on which such stockholders are required to vote in order to permit the
carrying out of the Contemplated Transactions and will take all other action
necessary or advisable to secure the vote or consent of their respective
stockholders required by the rules of the CBCA or the DGCL, as the case may be,
to obtain such approvals.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS. The
respective obligations of each Party to effect the respective Mergers shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. This Agreement and the Contemplated
Transactions shall have been approved and adopted by the requisite vote of
the holders of each Party's Common Stock and Preferred Stock, as the case
may be.
(b) HSR Act. The waiting period applicable to the consummation of the
Mergers under the HSR Act shall have expired or been terminated.
(c) No Orders. No preliminary or permanent injunction or other order by
any federal or state court in the United States of competent jurisdiction,
or any other Order, which prevents the consummation of either Merger or the
Mergers shall have been issued and remain in effect (each Party agreeing to
use its Best Efforts to have any such injunction lifted).
(d) Consents Obtained. All Consents, authorizations, orders and approvals
of (or filings or registrations with) any Governmental Body required in
connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except for filings in connection with the
Mergers and any other documents required to be filed after the Effective
Time and except where the failure to have obtained or made any such
Consent, authorization, order, approval, filing or registration would not
have a Material Adverse Effect on the business of the Parties and their
respective Subsidiaries, taken as a whole, following the Effective Date.
(e) Performance. Unless waived by the other Parties, each Party shall
have performed in all material respects its agreements contained in this
Agreement required to be performed on or prior to the Effective Time, and
the representations and warranties of each Party contained in this
Agreement shall be true and correct as of the date of this Agreement and as
of the Effective Time as though made on and as of the Effective Time
(except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as
of such date).
(f) Stock Exchange Approval. The shares of Saratoga Common Stock which
shall be issued to the shareholders of OptiCare and Prime upon consummation
of the Mergers shall have been approved for listing on the AMEX or NASDAQ,
as OptiCare, Prime and Saratoga shall agree, subject to official notice of
issuance.
(g) Requisite Regulatory Approvals. All regulatory approvals required to
consummate the Contemplated Transactions shall have been obtained and shall
remain in full force and effect and all statutory waiting periods shall
have expired and no such approvals shall contain any conditions or
restrictions which would reasonably be expected to result in a Material
Adverse Effect on any of the Parties (all such approvals and the expiration
of all such waiting periods being referred to herein as the "Requisite
Regulatory Approvals").
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(h) No Material Adverse Change. Between the date hereof and the Effective
Time, there shall have been no material adverse change in the business,
financial condition, operating results, assets, customer base of any of the
Parties.
(i) Saratoga Assets. As of the Closing, Saratoga shall have no
liabilities and no assets other than as described in the Saratoga
Disclosure Schedule and other than cash, which cash shall be not less than
One Hundred Fifty Thousand Dollars ($150,000) if the Closing Date is before
July 1, 1999 and which may decrease by Ten Thousand Dollars ($10,000) per
month for each month by which the Closing is delayed beyond June 30, 1999.
(j) Change of Name. Saratoga shall have changed its corporate name to a
name mutually agreed upon by OptiCare, Prime and Saratoga.
(k) 1998 Financial Statements. As of the Closing, the financial
statements referred to in Section 3.4 of Saratoga, OptiCare and Prime for
the year ended December 31, 1998 shall have been audited and shall have
received unqualified audit opinions. Prior to the Closing, Saratoga, Prime
and OptiCare shall each have provided to the Other Parties its audited 1998
financial statements, which OptiCare, Prime and Saratoga shall have
determined to be acceptable.
(l) Saratoga Board of Directors. The Saratoga directors and officers
shall resign effective as of the Effective Time, and the board of directors
of Saratoga shall be reconstituted to consist as of the Effective Time of
(a) Dean J. Yimoyines, Steven L. Ditman, Martin E. Franklin, (b) either
Allan L.M. Barker ("Barker") or D. Blair Harrold ("Harrold"), as they may
determine, and (c) three other persons agreed to by OptiCare and Prime.
(m) Registration of Saratoga Common Stock. The Saratoga Common Stock to
be issued to the former shareholders of OptiCare and Prime will be
registered with the SEC pursuant to the appropriate registration statement.
(n) Employment Agreements. Saratoga shall have entered into employment
agreements with (i) Dean Yimoyines, M.D. as Chairman, President and Chief
Executive Officer (the "CEO Employment Agreement") and (ii) management
personnel who report directly to Dr. Yimoyines (the "Other Employment
Agreements"), containing such terms and conditions as shall be approved by
OptiCare, Prime and Saratoga. All existing employment agreements between
(i) OptiCare or any Subsidiary of OptiCare and their respective employees
and (ii) Prime or any Subsidiary of Prime and their respective employees,
shall continue in accordance with their terms until replaced with new
agreements, except that the employment agreements between Prime or a
Subsidiary of Prime with Harrold and Barker shall be cancelled and replaced
effective as of the Effective Time with new agreements as described in
Section 6.1(ee). It is the intention of the Parties that the management of
OptiCare prior to the Merger will control the operations of Saratoga and
its Subsidiaries after the Effective Time.
(o) Prime Warrants. All Warrants to purchase shares of Prime Common
Stock, including the Marlin Capital Warrants and the Bank Austria Warrants,
shall be converted into shares of Prime Common Stock prior to the Effective
Time.
(p) Adoption of Stock Option Plan. Saratoga shall adopt a new Stock
Option Plan in a form to be agreed to by OptiCare, Prime and Saratoga
providing for the grant of options to purchase shares of Saratoga Common
Stock.
(q) Bank Austria Credit Anstalt. The credit facility between Prime and
Bank Austria Credit Anstalt or its affiliates, which consists of both term
and revolving loan commitments and has an aggregate principal amount
outstanding of approximately Forty Million Dollars ($40,000,000), shall be
reengineered prior to or as of the Closing to (i) reduce the principal
amount outstanding to a maximum of Twenty-Five Million Dollars
($25,000,000); (ii) revise the interest rate to be no higher than prime;
(iii) provide that no principal payments under the term loan will be due or
payable prior to January 1, 2000; and (iv) provide a repayment schedule and
other terms mutually acceptable to OptiCare, Prime and Saratoga.
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(r) Seller Notes. The promissory notes issues by Prime in connection with
the acquisition of the various physicians' ophthalmology practices (the
"Seller Notes"), which have an aggregate principal amount outstanding of
approximately Twenty-One Million Dollars ($21,000,000), shall be
reengineered prior to or as of the Closing to reduce the aggregate
principal amount of Seller Notes outstanding to no more than Four Million
Dollars ($4,000,000) as of the Closing. In connection with the
reengineering of the Seller Notes, the administrative service agreements
entered into between Prime and such physicians' practices (the "ASA
Agreements") shall be replaced by the Prime Physician Agreements which will
revise the fees to be paid by the physicians, the non-competition
provisions and other provisions under the ASA Agreements, in a manner to be
agreed to by Prime and OptiCare.
(s) Lock-up Agreements. All officers, directors and ten percent (10%)
stockholders of Saratoga immediately after the Closing and certain other
stockholders of Saratoga as required by OptiCare and Prime (the "Saratoga
Insiders") shall enter into lock-up agreements with Saratoga pursuant to
which such Saratoga Insiders (i) will agree not to sell their shares of
Saratoga Common Stock for a period of one-hundred and eighty (180) days
following the Closing and (ii) will agree they will thereafter notify
Saratoga in advance of any sales or will give Saratoga a right of first
refusal to purchase any shares of Saratoga Common Stock they wish to sell,
as OptiCare and Prime may require. Physicians who have agreements with
OptiCare or Prime as of the Closing shall enter into lock-up agreements
with Saratoga pursuant to which each of them will agree not to sell more
than twenty-five percent (25%) on a non-cumulative basis of his or her
Saratoga Common Stock in any six (6) month period.
(t) Dissenting Shareholders. OptiCare will not be required to effect the
OptiCare Merger if more than five percent (5%) of the outstanding shares of
any class of capital stock of OptiCare, Prime or Saratoga, if applicable,
shall have demanded and perfected statutory dissenters rights in connection
with the Contemplated Transactions. Prime will not be required to effect
the Prime Merger if more than five percent (5%) of the outstanding shares
of any class of capital stock of OptiCare, Prime or Saratoga, if
applicable, shall have demanded and perfected statutory dissenters rights
in connection with the Contemplated Transactions.
(u) Reverse Stock Split. Saratoga shall have effected a reverse stock
split of its common stock in a ratio agreed to by OptiCare, Prime and
Saratoga (the "Reverse Stock Split") and the authorized and outstanding
shares of capital stock of Saratoga immediately prior to the Effective Time
shall be as agreed to by OptiCare, Prime and Saratoga.
(v) Prime Physician Agreements. Prime shall have entered into Prime
Physician Agreements with all of its physician practices, which shall be
satisfactory to OptiCare and Saratoga.
(w) OptiCare Charter Amendment. The Certificate of Incorporation of
OptiCare shall have been appropriately amended so that the OptiCare Merger
will not constitute a liquidation, dissolution or winding up and will not
entitle any holders of any OptiCare Stock to receive any cash, securities
or other property other than the OptiCare Merger Consideration.
(x) Saratoga Stockholder Ownership. The Persons who were stockholders of
Saratoga immediately before the Effective Time will own a number of shares
of Saratoga Common Stock which will constitute two and one-half percent
(2.5%) of the total amount of Saratoga Common Stock calculated on a primary
basis to be outstanding immediately after the Effective Time, giving effect
to the Reverse Stock Split and the Mergers and taking into account any
shares of Saratoga Common Stock which are not issued in the Mergers and the
Reverse Stock Split because they are attributable to stockholders of
Saratoga and former stockholders of OptiCare and Prime who may have
demanded and perfected statutory dissenters rights.
(y) Saratoga Subsidiaries. Saratoga shall have disposed of the stock of
all of its subsidiary corporations other than OptiCare Sub and Prime Sub
and shall have no liabilities or obligations with respect to such
corporations.
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(z) Simultaneous Effectiveness of Mergers. The Certificates of Merger
shall provide that the OptiCare Merger and the Prime Merger shall be
effective at the same time.
(aa) Prime Class A Preferred Stock. The 8,000 shares of Prime Class A
Preferred Stock owned by Marlin Capital, L.P. as of the date of this
Agreement shall be transferred to Prime prior to the Effective Time in
exchange for the following: (i) 2,000 shares shall be converted into or
exchanged for shares of Prime Common Stock; (ii) 2,000 shares shall be
exchanged for a promissory note of Saratoga in the principal amount of
$2,000,000, due on the third anniversary of the Effective Time, bearing
interest at a market rate as agreed to by OptiCare and Prime with Marlin
Capital, L.P., and subordinated in right of payment to the bank debt of
Saratoga and the Surviving Corporations; and (iii) 4,000 shares shall be
exchanged for a redeemable, non-interest-bearing promissory note of
Saratoga in the principal amount of $4,000,000, due on the third
anniversary of the Effective Time, subordinated in right of payment to the
bank debt of Saratoga and the Surviving Corporations, having terms (except
the rate of interest) like the promissory note referred to in clause (ii)
above, with a target redemption date of no more than 180 days after the
Effective Time, subject to the determination by the Board of Directors of
Saratoga that market conditions are favorable for Saratoga to raise at
least $4,000,000 of net proceeds from a public or private sale of Saratoga
Common Stock during that 180-day period, and with the further provision
that if Saratoga does not complete such a sale within that 180-day period,
the promissory note would begin to bear interest after that 180-day period
at the rate of 9% per annum and would be redeemed at such later date as
Saratoga first raised at least $4,000,000 of net proceeds from a public or
private sale of Saratoga Common Stock; provided, however, that if Saratoga
does not redeem such promissory note within 365 days after the Effective
Time, then Marlin Capital shall thereafter have the option to convert such
promissory note into Saratoga Common Stock at a conversion price equal to
the greater of (x) the closing market price of Saratoga Common Stock on the
first trading day after the Effective Time and (y) 90% of the average
closing price of Saratoga Common Stock for the 20 trading days next
preceding the conversion date. The terms of those two promissory notes
shall be mutually acceptable to OptiCare, Prime and Saratoga.
(bb) Amendment of Certain OptiCare Agreements. The following agreements
shall have been amended to the satisfaction of OptiCare and Prime to
accommodate the Contemplated Transactions: (i) The Amended and Restated
Stockholders Agreement dated October 15, 1997 among OptiCare, Anthem Blue
Cross and Blue Shield of Connecticut ("Blue Cross"), Oxford Health Plans,
Inc. ("Oxford"), Nazem OptiCare Partners, L.P. ("Nazem Partners"),
Christopher Kaufman ("Kaufman"), Eugene Huang ("Huang"), Fred Nazem
("Nazem"), Richard Racine ("Racine"), Philip Barak ("Barak") and other
stockholders of OptiCare; (ii) Warrant Agreement dated October 15, 1997
among OptiCare, Blue Cross, Oxford, Nazem, Racine and Barak; (iii)
Registration Rights Agreement dated October 15, 1997 among OptiCare, Blue
Cross, Oxford, Nazem Partners, Huang and Kaufman; (iv) Stock Option and Put
Agreement dated September 17, 1987, as amended, between Philip Schub, O.D.,
and OptiCare; and (v) 1995 Stock Purchase Agreement among OptiCare, Blue
Cross and other parties.
(cc) Waite Severance Agreement. Steven B. Waite and Prime shall have
executed and delivered a severance agreement covering, among other things,
the termination of his employment with Prime and the Steven Waite Options
and lock-up provisions for the shares of Saratoga Common Stock he may
receive in the Prime Merger, which severance agreement OptiCare shall have
determined to be acceptable.
(dd) UCC Searches. OptiCare shall have received UCC searches for Prime
and its Subsidiaries and be satisfied with the Encumbrances shown thereon.
(ee) Settlement Matters. The Settlement Agreement entered into on April
9, 1999 (the "Settlement Agreement") with respect to the civil action
entitled D. Blair Harrold, et al. v. PrimeVision Health Inc. et al. filed
in the Nash County Superior Court (docket no. 99-CVS-634), State of North
Carolina (the "Civil Action") shall remain unmodified and in full force and
effect,
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and the parties to the Settlement Agreement shall have taken all actions
and done all things contemplated to be taken and done under the Settlement
Agreement at or prior to the Effective Time, including, but not limited to,
the execution and delivery of the following agreements provided for in the
Settlement Agreement, all of which agreements shall be in full force and
effect and all of which agreements each of OptiCare and Saratoga shall have
determined to be acceptable:
(1) Barker, Harrold and Optometric Eye Care Center, P.A. ("OECC, PA")
shall have released Prime, PrimeVision of North Carolina, Inc.,
Consolidated Eye Care, Inc. ("CEC"), Steven B. Waite and the other
parties to the Settlement Agreement from claims;
(2) Barker and Harrold shall have delivered in escrow to the Escrow
Agent designated in the Settlement Agreement papers necessary to dismiss
with prejudice the Civil Action, to be filed with the court promptly
following the Effective Time;
(3) Prime, Barker and Harrold shall have executed and delivered a
Share Grant Agreement under which Prime shall have issued to Barker and
Harrold such number of shares of Prime Common Stock as is necessary so
that they together will own an aggregate of 32% of the outstanding
shares of Prime Common Stock, calculated on a primary basis, immediately
before the Prime Merger;
(4) OECC, PA shall cancel and return to CEC at the Closing the
promissory note in the original principal amount of $364,896 dated
August 1, 1994 executed by CEC in favor of OECC, PA;
(5) Barker and Harrold shall have each executed and delivered an
employment agreement with OptiCare, to be effective at the Effective
Time, which employmentagreements will replace and supersede Barker and
Harrold's employment agreements in effect on the date of this Agreement
and which will have the terms summarized in Section 5 of the Settlement
Agreement;
(6) OptiCare, Barker and Harrold shall have executed and delivered the
option agreement contemplated by Section 6 of the Settlement Agreement
under which Barker and Harrold will have the right to purchase six
specified retail business operations after the Effective Time in the
event of an OptiCare liquidation because of insolvency or bankruptcy and
the failure of OptiCare to meet its obligations under the new employment
agreements with Barker and Harrold because only of its financial
inability to do so;
(7) CEC and OECC, PA shall have executed and delivered a new thirty
(30) year Administrative Services Agreement as contemplated by Section 8
of the Settlement Agreement;
(8) Prime, Barker and Harrold shall have executed and delivered the
Succession Agreement contemplated by Section 9 of the Settlement
Agreement, to take effect at the Effective Time, whereby at the
discretion of OptiCare the ownership of OECC, PA can be passed to
another Doctor of Optometry licensed in North Carolina or, to the extent
permitted by North Carolina law, a Doctor of Medicine licensed in North
Carolina, in either case acceptable to the OptiCare Surviving
Corporation; and
(9) Barker, Harrold and CEC shall have executed and delivered the
Transfer Agreements contemplated by Section 10 of the Settlement
Agreement whereby Barker and Harrold will transfer to CEC the leases for
all OECC, PA retail locations, such transfers to take effect at the
Effective Time.
In addition, Barker, Harrold and OECC, PA shall have released OptiCare
and its affiliates from all claims except their rights under agreements
to become effective at the Effective Time.
(ff) Request for Declaratory Ruling. The Request for Declaratory Ruling
from the North Carolina State Board of Examiners in Optometry referred to
in the Settlement Agreement shall have been finally resolved and disposed
of in a manner satisfactory to Prime and OptiCare.
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6.2 DOCUMENTS TO BE DELIVERED. Each Party shall have delivered, or caused
to be delivered, to the Other Parties at the Closing the following
(collectively, the "Closing Documents"):
(a) a certificate of such Party, signed by its President, Chief Executive
Officer or Chief Financial Officer, which shall confirm that the conditions
set forth in Section 6.1 with respect to such Party have been fulfilled;
(b) a copy of the articles or certificate of incorporation of such Party,
certified by the Secretary of State of the state of incorporation of such
Party and a Certificate of Good Standing from the Secretary of State of the
state of incorporation of such Party, and any state in which such Party is
qualified as a foreign corporation, evidencing the good standing of such
Party in such jurisdiction.
(c) a copy of each of (i) the text of the resolutions adopted by the
board of directors of such Party (A) authorizing the execution, delivery
and performance of this Agreement and its Certificate of Merger, if
applicable, and the consummation of the Contemplated Transactions and (B)
recommending to it stockholders that they approve the Contemplated
Transactions applicable to such Party and requiring approval by its
stockholders, (ii) the minutes of the meeting of the shareholders of such
Party held to consider and act on the Mergers and this Agreement and (iii)
the by-laws of such Party; along with a certificate executed on behalf of
such Party by its corporate secretary certifying to the other Parties that
such copies are true, correct and complete copies of such resolutions,
minutes and by-laws, respectively, and that such resolutions, shareholder
action at such meeting and by-laws were duly adopted and have not been
amended or rescinded;
(d) an incumbency certificate executed on behalf of such Party by its
corporate secretary certifying the signature and office of each officer
executing this Agreement and the Certificate of Merger on its behalf;
(e) the agreements and documents called for to satisfy the conditions in
Section 6.1; and
(f) such other documents and instruments as the Parties shall reasonably
request.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Mergers may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of the Parties, by the
mutual consent of the Parties.
7.2 TERMINATION BY SARATOGA, OPTICARE OR PRIME. (a) This Agreement may be
terminated and the Mergers may be abandoned by action of the board of directors
of either Saratoga, OptiCare or Prime if (i) the Mergers shall not have been
consummated by September 30, 1999, or (ii) the approval of the stockholders of
Saratoga, OptiCare and Prime required by Section 6.1(a) shall not have obtained
at a meeting duly convened therefor or at any adjournment or postponement
thereof, or (iii) a United States federal or state court of competent
jurisdiction or United States federal or state governmental body shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Contemplated Transactions
and such order, decree, ruling or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (iii) shall have used its Best Efforts to remove such
injunction, order or decree; and provided, in the case of a termination
pursuant to clause (i) above, that the terminating Party shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure to consummate the
Merger by September 30, 1999.
(b) This Agreement may be terminated and the Mergers may be abandoned at
any time prior to the Effective Date, before or after the adoption and
approval by the stockholders of Saratoga, OptiCare and Prime referred to in
Section 6.1(a), by action of the board of directors of
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any Party, if (i) there has been a Breach by another Party of any
representation or warranty contained in this Agreement which would have or
would be reasonably likely to have a Material Adverse Effect on such other
Party, or (ii) there has been a material Breach of any of the covenants or
agreements set forth in this Agreement on the part of another Party, which
Breach is not curable or, if curable, is not cured within thirty (30) days
after written notice of such Breach is given to such other Party by the
terminating Party. In the event of a termination pursuant to this
Subsection (b), OptiCare if it committed the Breach shall be liable to
Prime, and Prime if it committed the Breach shall be liable to OptiCare,
for all of the costs and expenses referred to in Section 8.3 and shall pay
such costs and expenses within ten (10) days after written demand therefor.
7.3 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Mergers pursuant to this Article VII,
no Party to this Agreement shall have any liability or further obligation to
any other Party hereunder except (a) as set forth in Sections 5.1, 7.2(b) and
8.3 and (b) that termination will not relieve a breaching party from liability
for any willful Breach of this Agreement.
7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, any Party,
by action taken by its board of directors, may, to the extent legally allowed,
(a) extend the time for the performance of any of the obligations or other acts
of the other Parties hereto, (b) waive any inaccuracies in the representations
and warranties made to such Party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such Party contained herein. Any agreement on the
part of a Party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such Party. Except as
provided in this Agreement, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any Party,
shall be deemed to constitute a waiver by the Party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any Party of a Breach of any
provision hereunder shall not operate or be construed as a waiver of any prior
or subsequent Breach of the same or any other provision hereunder.
7.5 AMENDMENT. Subject to compliance with applicable law, this Agreement
may be amended by the Parties hereto, by action taken or authorized by their
respective boards of directors, at any time before or after approval of the
matters presented in connection with the Mergers by the stockholders of the
Parties; provided, however, that after any approval of the transactions
contemplated by this Agreement by the stockholders of a Party, there may not
be, without further approval of such stockholders, any amendment of this
Agreement which changes the amount or the form of the consideration to be
delivered to the holders of such Party's common stock hereunder other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the Parties hereto.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties set forth in this Agreement shall terminate at
the Effective Date. All covenants and agreements set forth in this Agreement
shall survive in accordance with their terms.
8.2 NOTICES. All notices or other communications under this Agreement
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by facsimile (with proof of proper
transmittal) cable, telegram, telex or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to OptiCare:
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OptiCare Eye Health Centers, Inc.
87 Grandview Avenue
Waterbury, CT 06708
Attention:
Dean J. Yimoyines, M.D.
Telecopy No.: (203) 596-2227
With a copy to:
Day, Berry & Howard LLP
City Place I
Hartford, CT 06106
Attention:
William H. Cuddy, Esq.
Telecopy No.: (860) 275-0343
If to Prime:
PrimeVision Health, Inc.
First Union Capital Center
150 Fayetteville Street Mall
Suite 1620
Raleigh, NC 27601
Attention: President
Telecopy No.: (919) 743-0011
With a copy to:
Greg Luchs, Esq.
PrimeVision Health, Inc.
150 Fayetteville Street Mall
Suite 1620
Raleigh, NC 27601
Telecopy No.: (919) 863-3650
If to Saratoga, Prime Sub or OptiCare Sub:
Saratoga Resources, Inc.
2000 S. Dairy Ashford
Suite 410
Houston, TX 77077 Attention: Thomas Cook
Telecopy No.: (281) 531-0022
With a copy to:
Kane, Kessler, P.C.
1350 Avenue of the Americas
New York, NY 10019
Attention: Robert L. Lawrence, Esq.
Telecopy No.: (212) 245-3009
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section.
8.3 FEES AND EXPENSES. Whether or not the Mergers are consummated, all
costs and expenses, including reasonable attorneys' fees and expenses, incurred
in connection with this Agreement and the Contemplated Transactions, including
such costs and expenses of Saratoga, shall be shared equally by OptiCare and
Prime, except as otherwise provided in Section 7.2(b). The costs and expenses
of Saratoga shall be paid by OptiCare and Prime promptly upon delivery by
Saratoga of an invoice therefor.
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8.4 PUBLICITY. So long as this Agreement is in effect, each Party agrees
to consult with the Other Parties in issuing any press release or otherwise
making any public statement with respect to the Contemplated Transactions, and
none of them shall issue any press release or make any public statement prior
to such consultation, except as may be required by Legal Requirements. The
commencement of litigation relating to this Agreement or the transactions
contemplated hereby or any Proceedings in connection therewith shall not be
deemed a violation of this Section 8.4.
8.5 SPECIFIC PERFORMANCE. The Parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent Breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
8.6 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
Parties (whether by operation of law or otherwise) without the prior written
consent of the other Parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the Parties and their
respective successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the Parties or their
respective successors and permitted assigns any rights, remedies, obligations
or liabilities under or by reason of this Agreement; provided that the
Indemnified Parties shall be third-party beneficiaries of Saratoga's agreements
contained in Section 5.4 hereof and Kane Kessler, P.C. shall be third-party
beneficiaries of the agreements of OptiCare and Prime in Section 8.3 hereof.
8.7 ENTIRE AGREEMENT. This Agreement, Exhibit A, the respective Disclosure
Schedules of Saratoga, OptiCare Sub, Prime Sub, OptiCare and Prime, the
Confidentiality Agreement dated November 5, 1998 and any documents delivered by
the parties in connection herewith and therewith constitute the entire
agreement among the Parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the Parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any Party unless made in writing and signed by
all Parties.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws of the State of Delaware without regard to its rules of
conflict of laws.
8.9 COUNTERPARTS. This Agreement may be executed by the Parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the Parties. Facsimile
signatures may be accepted and will be binding until replaced subsequently by
originally signed signatures.
8.10 INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations, partnerships and other
entities and vice versa. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." No provision
of this Agreement shall be construed to require any Party or its Subsidiaries
or Affiliates to take any action which would violate any applicable Legal
Requirement.
8.11 INCORPORATION OF EXHIBITS. The respective Disclosure Schedules of
Saratoga, OptiCare Sub, Prime Sub, OptiCare and Prime and Exhibit A attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
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8.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, Saratoga, OptiCare Sub, Prime Sub, OptiCare and Prime
have caused this Agreement to be signed by their respective officers thereunder
duly authorized all as of the date first written above.
SARATOGA RESOURCES, INC.
By: s/ Thomas F. Cooke
------------------------------------------
Name: Thomas F. Cooke
Title: President
OPTICARE SHELLCO MERGER CORPORATION
By: s/ Thomas F. Cooke
------------------------------------------
Name: Thomas F. Cooke
Title: President
PRIMEVISION SHELLCO MERGER CORPORATION
By: s/ Thomas F. Cooke
------------------------------------------
Name: Thomas F. Cooke
Title: President
OPTICARE EYE HEALTH CENTERS, INC.
By: s/ Dean J. Yimoyines
------------------------------------------
Name: Dean J. Yimoyines
Title: Chairman of the Board, President
and Chief Executive Officer
PRIMEVISION HEALTH, INC.
By: s/ David A. Durfee
------------------------------------------
Name: David A. Durfee
Title: Acting President
A-54
<PAGE>
ANNEX B
FORM OF
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SARATOGA RESOURCES, INC.
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SARATOGA RESOURCES, INC.
(Under Section 242 of the Delaware General Corporation Law)
SARATOGA RESOURCES, INC., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is SARATOGA RESOURCES, INC. (the
"Corporation").
2. The certificate of incorporation is hereby amended by striking out
Article FIRST thereof and substituting in lieu thereof the following new
Article FIRST:
FIRST: The name of the corporation is "OPTICARE HEALTH SYSTEMS, INC."
(the "Corporation")."
3. The certificate of incorporation is hereby amended by striking out
Article FOURTH thereof and substituting in lieu thereof the following new
Article FOURTH:
"FOURTH: (i) The total number of shares of stock which the Corporation
shall have authority to issue is fifty-five million (55,000,000), of which
stock five million (5,000,000) shares of the par value of $0.001 each,
amounting in the aggregate to $5,000, shall be designated Preferred Stock
(hereinafter referred to as "Preferred Stock"), and of which stock fifty
million (50,000,000) shares of the par value of $0.001 each, amounting in
the aggregate to $50,000, shall be designated Common Stock (hereinafter
referred to as "Common Stock").
(ii) The Preferred Stock may be issued from time to time in one or more
series, each such series to have distinctive serial designations. The Board
of Directors is hereby authorized to issue the shares of Preferred Stock in
such series and to fix from time to time before issuance the number of
shares to be included in any series and the designation, relative powers,
preferences and rights and qualifications, limitations or restrictions of
all shares of such series. The authority of the Board of Directors with
respect to each series shall include, without limiting the generality of
the foregoing, the determination of any or all of the following:
(1) The number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
(2) The voting powers, if any, and whether such voting powers are full or
limited in such series;
(3) The redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(4) Whether dividends, if any, shall be cumulative or noncumulative, the
dividend rate of such series, and the dates and preferences of dividends on
such series;
(5) The rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Corporation;
(6) The provisions, if any, pursuant to which the shares of such series
are convertible into, or exchangeable for, shares of any other class or
classes of any other series of the same or any other class or classes of
stock, or any other security, of the Corporation or any other corporation,
and price or prices or the rates of exchange applicable thereto;
(7) The right, if any, to subscribe for or to purchase any securities of
the Corporation or any other corporation;
(8) The provisions, if any, of a sinking fund applicable to such series;
and
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<PAGE>
(9) Any other relative, participating, optional or other special powers,
preferences, rights, qualifications, limitations or restrictions thereof;
all as shall be stated in such resolution or resolutions of the Board of
Directors of the Corporation providing for the issue of such Preferred Stock (a
"Preferred Stock Designation").
(iv) Except where otherwise set forth in the resolution or resolutions
adopted by the Board of Directors of the Corporation providing for the
issue of any series of Preferred Stock created thereby, the number of
shares comprising such series may be increased or decreased (but not below
the number of shares then outstanding) from time to time by like action of
the Board of Directors of the Corporation.
(v) Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise), purchased
or otherwise acquired by the Corporation, or which, if convertible or
exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as a part of the
series of which they were originally a part or may be reclassified or
reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors or as part of any other
series of Preferred Stock, all subject to the conditions or restrictions
adopted by the Board of Directors of the Corporation providing for the
issue of any series of Preferred Stock and to any filing required by law.
(vi) Each share of Common Stock shall entitle the holder thereof to one
vote, in person or by proxy, at any and all meetings of the stockholders of
the Corporation on all propositions before such meetings. No holder of
Common Stock shall have the right to cumulate such holder's votes for the
election of directors, but each holder of Common Stock shall be entitled to
one vote for each share held thereof in the election of each director of
the Corporation.
(vii) Except as may be provided in this Certificate of Incorporation or
by the Board of Directors in a Preferred Stock Designation, the Common
Stock shall have the exclusive right to vote for the election of directors
of the Corporation and for all other purposes, and holders of Preferred
Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote or consent.
(viii) Subject to all of the rights of the Preferred Stock or any series
thereof, the holders of the Common Stock shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation, out
of funds legally available therefor, dividends payable in cash, stock or
otherwise.
(ix) Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred
Stock of each series shall have been paid in full the amounts to which they
respectively shall be entitled, or a sum sufficient for such payments in
full shall have been set aside, the remaining net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights and interests, to the exclusion of
the holders of the Preferred Stock.
(x) At the Effective Time (as hereinafter defined) of this Certificate of
Amendment, each share of common stock, par value $0.001 per share issued
and outstanding immediately prior to the Effective Time ("Old Common
Stock"), shall automatically be reclassified and continued (the "Reverse
Split"), without any action on the part of the holder thereof, as Six
Hundred Fifty-one Ten-Thousandths (0.0651) of one share of common stock,
par value $0.001 per share (the "Reverse Split Rate") of the Corporation.
The Corporation shall not issue fractional shares on account of this
Reverse Split. Holders of common stock who would otherwise be entitled to a
fraction of a share on account of the Reverse Split shall receive, upon
surrender of the stock certificates formerly representing shares of the Old
Common Stock in lieu of such fractional share, an amount in cash (the
"Cash-in-Lieu Amount") equal to the product of (i) the fractional share
which a holder would otherwise be entitled to, multiplied by (ii)
$ , which is the
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<PAGE>
closing sale price, or, if not available, the average of the closing bid
and closing asked price, of the Old Common Stock as reported by the
National Quotation Bureau, New York, New York, on the business day prior to
the day of the Effective Time multiplied by the Reverse Split Rate. No
interest shall be payable on the Cash-in-Lieu Amount.
4. The certificate of incorporation is hereby amended by adding at the end
thereof a new Article TWELFTH, which reads in its entirety as follows:
"TWELFTH: (i) The Corporation shall indemnify any person who was or is a
party or witness, or is threatened to be made a party or witness, to any
threatened, pending or completed action, suit or proceeding by or in the right
of the Corporation, whether civil, criminal, administrative or investigative
(including a grand jury proceeding) by reason of the fact that he or she is or
was a director or officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, employee, agent, partner or trustee
(or in any similar position) of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, to the fullest
extent authorized or permitted by the General Corporation Law of the State of
Delaware and any other applicable law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding, or in connection with any appeal thereof. Such
right to indemnification shall include the right to payment by the Corporation
of expenses incurred in connection with any such action, suit or proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by a director or officer in advance of the final disposition
of such action, suit or proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this Article or
otherwise.
(ii) Any indemnification or advancement of expenses required under this
Article shall be made promptly, and in any event within sixty (60) days, upon
the written request of the person entitled thereto. If the Corporation
determines that the person is entitled to indemnification pursuant to this
Article, and the Corporation fails to respond within sixty (60) days to a
written request for indemnification or advancement of expenses, in whole or in
part, or if payment in full pursuant to such request is not made within sixty
(60) days, the rights to indemnification and advancement of expenses shall be
enforceable by such person in any court of competent jurisdiction. Such
person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action or proceeding shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce
a claim for advancement of expenses pursuant to this Article where the required
undertaking has been received by the Corporation) that the claimant has not met
the standard of conduct set forth in the General Corporation Law of the State
of Delaware, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including the Board of
Directors, independent legal counsel or the stockholders) to have made a
determination that the claim is proper in the circumstances because the
claimant has not met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor the fact that there has
been an actual determination by the Corporation (including the Board of
Directors, independent legal counsel or the stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable standard
of conduct. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful.
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<PAGE>
(iii) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article TWELFTH shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to acts or omissions to act in
his or her official capacity and as to acts or omissions to act in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person. Any repeal
or modification of the provisions of this Article TWELFTH shall not affect any
obligations of the Corporation or any rights regarding indemnification and
advancement of expenses of a director, officer, employee or agent with respect
to any threatened, pending or completed action, suit or proceeding for which
indemnification or the advancement of expenses is requested, in which the
alleged cause of action accrued at any time prior to such repeal or
modification.
(iv) The Corporation may purchase and maintain insurance, at its expense,
to protect itself and any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against liability asserted against him or her in any such capacity, or arising
out of his or her status as such, whether or not the Corporation would have the
power to indemnify him or her against such liability under the provisions of
this Article TWELFTH, the General Corporation Law of the State of Delaware or
otherwise.
(v) If this Article TWELFTH or any portion thereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director and officer of the Corporation as to
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including, without limitation, a
grand jury proceeding and an action, suit or proceeding by or in the right of
the Corporation, to the fullest extent permitted by any applicable portion of
this Article TWELFTH that shall not have been invalidated, by the General
Corporation Law of the State of Delaware or by any other applicable law."
5. The effective time (the "Effective Time") of this certificate of
amendment of the certificate of incorporation shall be 4:45 p.m., Delaware
local time, on the day that this certificate if filed in the office of the
Secretary of State of the State of Delaware.
6. The amendments set forth herein were duly adopted in accordance with
Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate has been signed by the President of
the Corporation on the date set forth below.
Date: August , 1999
------------------ ---------------------------------
Name:
Title:
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<PAGE>
ANNEX C
PERFORMANCE STOCK PROGRAM
1. PURPOSE
The purpose of the Plan is to provide a means through which the Company
may attract able persons to provide services to or enter and remain in the
employ with the Company and its Subsidiaries and to provide a means whereby
they can acquire and maintain common stock ownership, or be paid incentive
compensation measured by reference to the value of common stock, thereby
strengthening their commitment to the welfare of the Company and promoting an
identity of interest between stockholders of the Company and these service
providers and employees.
So that the appropriate incentive can be provided, the Plan provides for
granting Incentive Stock Options, Nonqualified Stock Options, Restricted Stock
Awards, and Performance Share or Cash Unit Awards, or any combination of the
foregoing.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan.
"Award" means, individually or collectively, any Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, or Performance Share or Cash
Unit Award under the Plan.
"Award Agreement" means the agreement between the Company and a
Participant who has been granted an Award which defines the rights and
obligations of the parties with respect to such Award.
"Award Period" means a period of time within which performance is measured
for the purpose of determining whether an Award of Performance Share or Cash
Units has been earned.
"Board" means the board of directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
"Committee" means the [Compensation Committee] of the Board, or, if the
Board so directs, the full Board or another committee appointed by the Board to
administer the Plan as described in Section 4.
"Common Stock" means the common stock of the Company.
"Company" means Saratoga Resources, Inc., a Delaware corporation. The name
of the corporation is intended to be changed to "OptiCare Health Systems, Inc."
at about the same time that this Program is to be adopted and approved by the
stockholders of the Company.
"Date of Grant" means the date on which the granting of an Award is
authorized or such other date as may be specified in such authorization.
"Disability" means "permanent and total disability" as defined in Section
22(e)(3) of the Code.
"Eligible Person" means any person regularly employed by or providing
consulting or other services to the Company or a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" on a given date means (i) if the Stock is listed on a
national securities exchange, the mean between the highest and lowest sale
prices reported as having occurred on the primary exchange on which the Stock
is listed and traded on the date prior to such date, or, if there is no such
sale on that date, then on the last preceding date on which such a sale was
reported; (ii) if the Stock is not listed on any national securities exchange
but is quoted in the National Market System of The Nasdaq Stock Market on a
last sale basis, the average between the high bid price and low ask
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price reported on the date prior to such date, or, if there is no such sale on
that date, then on the last preceding date on which a sale was reported; or
(iii) if the Stock is not listed on a national securities exchange nor quoted
in the National Market System of The Nasdaq Stock Market on a last sale basis,
the amount determined by the Committee to be the fair market value based upon a
good faith attempt to value the Stock accurately.
"Holder" means a Participant who has been granted an Award, or a permitted
transferee of such a Participant.
"Incentive Stock Option" means an Option granted by the Committee to a
Participant under the Plan which is designated by the Committee as an
"incentive stock option" within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" means an Option granted under the Plan which
is not designated as an Incentive Stock Option.
"Normal Termination" means termination of employment or service with the
Company or a Subsidiary other than by reason of death or Disability:
"Option" means an Award granted under Section 7 of the Plan.
"Option Period" means the period described in Section 7(c).
"Option Price" means the exercise price set for an Option described in
Section 7(a).
"Participant" means an Eligible Person who has been selected by the
Committee to participate in the Plan and to receive an Award pursuant to
Section 6.
"Performance Goals" means the performance objectives established by the
Committee with respect to an Award Period or Restricted Period, with respect to
Performance Share or Cash Units or Restricted Stock, respectively, established
for the purpose of determining whether, and to what extent, such Awards will be
earned for an Award Period or Restricted Period.
"Performance Cash Unit" means a hypothetical equivalent to a number of
dollars established by the Committee and granted in connection with an Award
made under Section 8 of the Plan.
"Performance Share Unit" means a hypothetical investment equivalent equal
to one share of Stock granted in connection with an Award made under Section 8
of the Plan.
"Plan" means the Company's Performance Stock Program, as amended.
"Restricted Period" means, with respect to any share of Restricted Stock,
the period of time determined by the Committee during which such Award is
subject to the restrictions set forth in Section 9 of the Plan.
"Restricted Stock" means shares of Stock issued or transferred to a
Participant subject to forfeiture and the other restrictions set forth in
Section 9 of the Plan.
"Restricted Stock Award" means an Award of Restricted Stock granted under
Section 9 of the Plan.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock" means the common stock or such other authorized shares of stock of
the Company as from time to time may be authorized for use under the Plan.
"Subsidiary" means any corporation 50% or more of whose stock having
general voting power is owned by the Company, or by another Subsidiary, as
herein defined, of the Company.
3. EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL
The Plan is effective as of , 1999. The validity of any and all
Awards granted pursuant to the Plan is contingent upon approval of the Plan by
the stockholders of the Company in a manner which complies with Section
422(b)(1) of the Code and Section 162(m)(4)(C)(ii) of the Code.
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The expiration date of the Plan, after which no Awards may be granted
hereunder, shall be , 2004; provided, however, that the administration of
the Plan shall continue in effect until all matters relating to the payment of
Awards previously granted have been settled.
4. ADMINISTRATION
The Plan shall be administered by the Committee, which shall be composed
of at least two persons, each member of which, at the time he or she takes any
action with respect to an Award under the Plan, shall be a "Non-Employee
Director", as defined in Rule 16b-3 under the Exchange Act, or any successor
rule or regulation, and an "outside director", as defined in Treasury
Regulations Section 1.162-27(e)(3), or any successor regulation. The majority
of the members of the Committee shall constitute a quorum. The acts of a
majority of the members present at any meeting at which a quorum is present or
acts approved in writing by a majority of the Committee shall be deemed the
acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have exclusive
power to:
(a) Select the Eligible Persons to participate in the Plan;
(b) Determine the nature and extent of the Awards to be made to each
Participant;
(c) Determine the time or times when Awards will be made to Eligible
Persons;
(d) Determine the duration of each Award Period and Restricted Period;
(e) Determine the conditions to which the payment of Awards may be
subject;
(f) Establish the Performance Goals, if any, for each Award Period;
(g) Prescribe the form of Award Agreement or other form or forms
evidencing Awards; and
(h) Cause records to be established in which there shall be entered, from
time to time as Awards are made to Eligible Persons, the date of each
Award, the number of Incentive Stock Options, Nonqualified Stock Options,
Performance Share or Cash Units, and shares of Restricted Stock awarded by
the Committee to each Eligible Person, and the expiration date and the
duration of any applicable Award Period or Restricted Period.
The Committee shall have the authority, subject to the provisions of the
Plan, to establish, adopt, or revise such rules and regulations and to make all
such determinations relating to the Plan as it may deem necessary or advisable
for the administration of the Plan. The Committee's interpretation of the Plan
or any documents evidencing Awards granted pursuant thereto and all decisions
and determinations by the Committee with respect to the Plan shall be final,
binding, and conclusive on all parties unless otherwise determined by the
Board.
5. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN
The Committee may, from time to time, grant Awards of Options, Restricted
Stock, and/or Performance Share or Cash Units to one or more Eligible Persons;
provided, however, that:
(a) The aggregate number of shares of Stock made subject to all Awards
may not exceed the lesser of (i) 3,000,000, subject to Section 12, and (ii)
15% of the sum of (x) the number of shares of Stock outstanding at the time
the limitation in this clause (ii) is calculated, (y) the number of shares
of Stock subject to Options and Performance Shares outstanding at such time
and (z) the number of shares of Stock available at such time for future
Awards under the Plan; and the aggregate number of shares of Stock subject
to Awards to any single individual in 1999 may not exceed 600,000
(excluding Options granted pursuant to Section 7(i)) and in any subsequent
calendar year may not exceed 200,000.
(b) Such shares shall be deemed to have been used in payment of Awards
whether they are actually delivered or the Fair Market Value equivalent of
such shares is paid in cash. In the event
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any Option, Restricted Stock Award, or Performance Share or Cash Unit shall
be surrendered, terminate, expire, or be forfeited, the number of shares of
Stock no longer subject thereto shall thereupon be released and shall
thereafter be available for new Awards under the Plan;
(c) Stock delivered by the Company in settlement of Awards under the Plan
may be authorized and unissued Stock or Stock held in the treasury of the
Company or may be purchased on the open market or by private purchase;
(d) The Committee may, in its sole discretion, require a Participant to
pay consideration for an Award in an amount and in a manner as the
Committee deems appropriate; and
(e) The Committee may only grant Incentive Stock Options to Eligible
Persons who are employees of the Company or a Subsidiary.
6. ELIGIBILITY
Participation shall be limited to Eligible Persons selected by the
Committee.
7. STOCK OPTIONS
Subject to Section 5(e), the Committee is authorized to grant one or more
Incentive Stock Options or Nonqualified Stock Options to any Eligible Person.
Each Option so granted shall be subject to the following conditions or to such
other conditions as may be reflected in the applicable Award Agreement.
(a) OPTION PRICE. The exercise price ("Option Price") per share of Stock
for each Option shall be set by the Committee at the time of grant but
shall not be less than the Fair Market Value of a share of Stock at the
Date of Grant.
(b) MANNER OF EXERCISE AND FORM OF PAYMENT. Options which have become
exercisable may be exercised by delivery of written notice of exercise to
the Committee accompanied by payment of the Option Price. The Option Price
shall be payable either (i) by United States dollars in cash or by check,
(ii) at the discretion of the Committee, through shares of Stock valued at
the Fair Market Value at the time the Option is exercised (provided that
such Stock has been held by the Participant for at least six months), or
(iii) at the discretion of the Committee, by any combination of (i) and
(ii) above.
(c) OPTION PERIOD AND EXPIRATION. Options shall vest and become
exercisable in such manner and on such date or dates determined by the
Committee and shall expire after such period, not to exceed ten years with
respect to Incentive Stock Options, as may be determined by the Committee
(the "Option Period"); provided, however, that notwithstanding any vesting
dates set by the Committee, the Committee may, in its sole discretion,
accelerate the exercisability of any Option, which acceleration shall not
affect the terms and conditions of any such Option other than with respect
to exercisability. If an Option is exercisable in installments, such
installments or portions thereof which become exercisable shall remain
exercisable until the Option expires. Unless otherwise stated in the
applicable Option Award Agreement, an Incentive Stock Option shall expire
earlier than the end of the Option Period in the following circumstances:
(i) If prior to the end of the Option Period, the Participant shall
undergo a Normal Termination, the Incentive Stock Option shall expire
on the earlier of the last day of the Option Period or the date that is
three months after the date of such Normal Termination. In such event,
the Incentive Stock Option shall remain exercisable by the Holder until
its expiration, only to the extent the Option was exercisable at the
time of such Normal Termination;
(ii) If the Participant dies prior to the end of the Option Period and
while still in the employ of the Company or such Participant becomes
Disabled, the Incentive Stock Option shall expire on the earlier of the
last day of the Option Period or the date that is one year after the
date of death or Disability of the Participant. In the event of death
or Disability, the
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Incentive Stock Option shall remain exercisable by the Participant or
the Holder or Holders to whom the Participant's rights under the
Incentive Stock Option pass by will or the applicable laws of descent
and distribution until its expiration, only to the extent the Incentive
Stock Option was exercisable by the Participant at the time of death or
Disability.
In granting any Nonqualified Stock Option, the Committee may specify that
such Nonqualified Stock Option shall be subject to the restrictions set forth
in Section 7(c)(i) or (ii) herein with respect to Incentive Stock Options, or
such other termination and cancellation provisions as the Committee may
determine.
(d) OTHER TERMS AND CONDITIONS. In addition, each Option granted under
the Plan shall be evidenced by an Award Agreement, which shall contain such
provisions as may be determined by the Committee and, except as may be
specifically stated otherwise in such Award Agreement, which shall be
subject to the following terms and conditions:
( ) Each Option issued pursuant to this Section 7 or portion thereof that
is exercisable shall be exercisable for the full amount or for any part
thereof.
( ) Each share of Stock purchased through the exercise of an Option issued
pursuant to this Section 7 shall be paid for in full at the time of the
exercise. Each Option shall cease to be exercisable, as to any share of
Stock, when the Holder purchases the share or when the Option expires.
( ) Subject to Section 11(k), Options issued pursuant to this Section 7
shall not be transferable by the Holder except by will or the laws of
descent and distribution and shall be exercisable during the Holder's
lifetime only by the Holder.
( ) Each Option issued pursuant to this Section 7 shall vest and become
exercisable by the Holder in accordance with the vesting schedule
established by the Committee and set forth in the Award Agreement.
( ) Each Award Agreement may contain a provision that, upon demand by the
Committee for such a representation, the Holder shall deliver to the
Committee at the time of any exercise of an Option issued pursuant to
this Section 7 a written representation that the shares to be acquired
upon such exercise are to be acquired for investment and not for resale
or with a view to the distribution thereof. Upon such demand, delivery
of such representation prior to the delivery of any shares issued upon
exercise of an Option issued pursuant to this Section 7 shall be a
condition precedent to the right of the Holder to purchase any shares.
In the event certificates for Stock are delivered under the Plan with
respect to which such investment representation has been obtained, the
Committee may cause a legend or legends to be placed on such
certificates to make appropriate reference to such representation and
to restrict transfer in the absence of compliance with applicable
federal or state securities laws.
( ) Each Incentive Stock Option Award Agreement shall contain a provision
requiring the Holder to notify the Company in writing immediately after
the Holder makes a disqualifying disposition of any Stock acquired
pursuant to the exercise of such Incentive Stock Option. A
disqualifying disposition is any disposition (including any sale) of
such Stock before the later of (a) two years after the Date of Grant of
the Incentive Stock Option or (b) one year after the date the Holder
acquired the Stock by exercising the Incentive Stock Option.
(e) INCENTIVE STOCK OPTION GRANTS TO 10% STOCKHOLDERS. Notwithstanding
anything to the contrary in this Section 7, if an Incentive Stock Option is
granted to a Participant who owns stock representing more than ten percent
of the voting power of all classes of stock of the Company or of a
Subsidiary, the Option Period shall not exceed five years from the Date of
Grant of such Option and the Option Price shall be at least 110 percent of
the Fair Market Value (on the Date of Grant) of the Stock subject to the
Option.
(f) $100,000 PER YEAR LIMITATION FOR INCENTIVE STOCK OPTIONS. To the
extent the aggregate Fair Market Value (determined as of the Date of Grant)
of Stock for which Incentive Stock Options are exercisable for the first
time by any Participant during any calendar year (under all plans of the
Company and its Subsidiaries) exceeds $100,000, such excess Incentive Stock
Options shall be treated as Nonqualified Stock Options.
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(g) VOLUNTARY SURRENDER. The Committee may permit the voluntary surrender
of all or any portion of any Nonqualified Stock Option issued pursuant to
this Section 7 granted under the Plan to be conditioned upon the granting
to the Holder of a new Option for the same or a different number of shares
as the Option surrendered or require such voluntary surrender as a
condition precedent to a grant of a new Option to such Participant. Such
new Option shall be exercisable at an Option Price, during an Option
Period, and in accordance with any other terms or conditions specified by
the Committee at the time the new Option is granted, all determined in
accordance with the provisions of the Plan without regard to the Option
Price, Option Period, or any other terms and conditions of the Nonqualified
Stock Option surrendered. Such voluntary surrender shall only be permitted
when necessary to maintain Option value due to extreme circumstances beyond
the control of the optionee and shall not be permitted with respect to
Options for Stock exceeding ten percent of the amount of Stock available
for grant under the Plan.
(h) CONVERSION OF INCENTIVE STOCK OPTIONS INTO NONQUALIFIED STOCK
OPTIONS; TERMINATION OF INCENTIVE STOCK OPTIONS. The Committee, at the
written request of any Holder, may in its discretion, take such actions as
may be necessary to convert such Holder's Incentive Stock Options (or any
installments or portions of installments thereof) that have not been
exercised on the date of conversion into Nonqualified Stock Options at any
time prior to the expiration of such Incentive Stock Options, regardless of
whether the Holder is an employee of the Company or a Subsidiary at the
time of such conversion. Such actions may include, but not be limited to,
extending the Option Period or reducing the exercise price of the
appropriate installments of such Incentive Stock Options. At the time of
such conversion, the Committee (with the consent of the Holder) may impose
such conditions on the exercise of the resulting Nonqualified Stock Options
as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan
shall be deemed to give any Holder the right to have such Holder's
Incentive Stock Options converted into Nonqualified Stock Options, and no
such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the Holder, may also
terminate any portion of any Incentive Stock Option that has not been
exercised at the time of such termination.
(i) SUBSTITUTION OF OPTIONS. The Committee shall grant Options in
substitution for options held for stock in OptiCare Eye Health Centers, Inc.
and PrimeVision Health, Inc. in effect on the date of the acquisition of
those entities by the Company through mergers with Subsidiaries of the
Company, with terms in accordance with the terms for such previous options,
but with an appropriate adjustment in the exercise price and number of shares
subject to the options in compliance with the requirements of Section 424 of
the Code.
8. PERFORMANCE SHARE OR CASH UNITS
(a) AWARD GRANTS. The Committee is authorized to establish performance
programs to be effective over designated Award Periods determined by the
Committee. The Committee may grant Awards of Performance Share or Cash Units to
Eligible Persons in accordance with such performance programs. Before or within
90 days after the beginning of each Award Period, the Committee will establish
written Performance Goals based upon financial objectives for the Company for
such Award Period and a schedule relating the accomplishment of the Performance
Goals to the Awards to be earned by Participants. Performance Goals may include
absolute or relative growth in earnings per share or rate of return on
stockholders' equity or other measurement of corporate performance and may be
determined on an individual basis or by categories of Participants. The
Committee shall determine the number of Performance Share or Cash Units to be
awarded, if any, to each Eligible Person who is selected to receive such an
Award.
(b) DETERMINATION OF AWARD. At the completion of a Performance Award
Period, or at other times as specified by the Committee, the Committee shall
calculate the number of shares of Stock or
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amount of cash earned with respect to each Participant's Performance Share or
Cash Unit Award by multiplying the number of Performance Units granted to the
Participant by a performance factor representing the degree of attainment of
the Performance Goals.
(c) PAYMENT OF PERFORMANCE SHARE OR CASH UNIT AWARDS. Performance Share or
Cash Unit Awards shall be payable in that number of shares of Stock or that
amount of cash determined in accordance with Section 8(b); provided, however,
that, at its discretion, the Committee may make payment to any Participant of
Performance Share Units in the form of cash upon the specific request of such
Participant. The amount of any payment made in cash shall be based upon the
Fair Market Value of the Stock on the business day prior to payment. Payments
of Performance Unit Awards shall be made as soon as practicable after the
completion of an Award Period; provided, however, that if a Participant makes
the election described below, Performance Share or Cash Units (with any Cash
Units being converted into equivalent Performance Shares) shall instead be
credited to the Participant's Performance Share Account. Such credit of
Performance Shares to a Participant's Performance Share Account shall be made
as of the same date as payment of the Award would have been made to the
Participant had no prior election been made.
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(i) ELECTIONS.
Any election to have an Award or a portion of an Award credited to a
Performance Share Account shall be made on a written form provided by the
Company for such purpose and shall only be effective with respect to Awards
that may be made on and after the January 1 following the Company's receipt
of such form, provided that such form is received by the December 24 prior
to the applicable January 1. Any such election shall be made only in
increments of ten percent (10%) of the Award (rounded to the nearest whole
share) and shall be effective only for Awards made during the year in which
the election becomes effective.
(ii) PERFORMANCE SHARE ACCOUNT.
The Company shall maintain on its books and records a Performance Share
Account to record its liability for future payments to the Participant or
his beneficiary pursuant to the Plan. However, a Performance Share Account
under the Plan shall constitute an unfunded arrangement; the Company shall
not be required to segregate or earmark any of its assets for the benefit
of the Participant or his beneficiary, and the amount reflected in a
Performance Share Account shall be available for the Company's general
corporate purposes and shall be available to the Company's general
creditors. The amount reflected in a Performance Share Account shall not be
subject in any manner to anticipation, alienation, transfer or assignment
by the Participant or his or her beneficiary, and any attempt to
anticipate, alienate, transfer or assign the same shall be void. Neither
the Participant nor his or her beneficiary may assert any right or claim
against any specific assets of the Company in respect of a Performance
Share Account, and the Participant and his or her beneficiary shall have
only a contractual right against the Company for the amount reflected in a
Performance Share Account.
Notwithstanding the foregoing, in order to pay amounts which may become
due under the Plan in respect of a Participant's Performance Share Account,
the Company may establish a grantor trust (hereinafter the "Trust") within
the meaning of Section 671 of the Code. Some or all of the assets of the
Trust may be dedicated to providing benefits to the Participants pursuant
to the Plan, but, nevertheless, all assets of the Trust shall at all times
remain subject to the claims of the Company's general creditors in the
event of the Company's bankruptcy or insolvency.
(iii) DIVIDEND EQUIVALENTS.
On every date on which a dividend or other distribution is paid with
respect to common stock, commencing with the first such payment date after
the date on which a Performance Share is credited to a Participant's
Performance Share Account and continuing until such Performance Share is
either forfeited or paid out, there shall be credited to the Participant's
Performance Share Account a Dividend Equivalent in respect of such
Performance Share. A Dividend Equivalent shall mean, with respect to a
whole Performance Share credited to a Participant's Performance Share
Account, a measure of value equal to the fractional share of common stock
that could be purchased with the amount that would have been paid to the
Participant as a dividend or other distribution if the Participant had
owned a whole share of common stock in lieu of said whole Performance
Share, the date of such deemed purchase being the dividend payment date.
Dividend Equivalents are expressed in the form of Performance Shares.
(iv) PARTICIPANT NOT A STOCKHOLDER.
The Participant shall have no stockholder's rights with respect to any
shares of common stock in respect of which Performance Shares are credited
to his or her Performance Share Account.
(v) PAYMENTS IN RESPECT OF PERFORMANCE SHARES.
1. Termination of Employment or Provision of Services: In the event of a
Participant's Normal Termination and without a payment date having
been specified as provided below, such Participant shall be entitled
to receive payment in respect of the entire amount then credited to
his or her Performance Share Account. Such payment shall be made in
the form of the number of shares of common stock equal to the number
of
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whole Performance Shares then credited to the Participant's
Performance Share Account, with any fractional Performance Share
being paid in cash determined on the basis of the value of a
corresponding fractional share of common stock on the business day
preceding the date of payment. Said shares of common stock and any
cash amount shall be transferred to the Participant within sixty (60)
days after the Participant's Normal Termination.
2. Election of Participant: Upon prior written election by a Participant,
the Participant shall be entitled to receive payment in respect of an
Award of Performance Shares, to the extent then vested, and any
Dividend Equivalents earned on such Award on the date or dates
specified in such written election. Such election must either be made
as part of the election to have such Award of Performance Shares
credited to a Performance Share Account as provided above, or at any
time at least one year prior to the date on which such payment would
otherwise be made. Such payment shall be made in the form of the
number of shares of common stock equal to the number of whole
Performance Shares, including related Dividend Equivalents, then
credited to the Participant's Performance Share Account with respect
to such Award, with any fractional Performance Share being paid in
cash determined on the basis of the value of a corresponding
fractional share of common stock on the business day preceding the
date of payment. The Participant's Performance Share Account
thereafter shall be reduced to reflect the foregoing payment. Nothing
herein shall preclude separate elections with respect to separate
Awards.
3. Disability or Death While Employed by or Providing Services to the
Company: Notwithstanding an election made pursuant to the preceding
section, in the event of a Participant's termination of employment or
provision of services for reasons of Disability or death, the
Participant or his or her beneficiary, as the case may be, shall be
entitled to receive payment in respect of the entire amount then
credited to his or her Performance Share Account. Such payment shall
be made in the form of the number of shares of common stock equal to
the number of whole Performance Shares then credited to the
Participant's Performance Share Account, with any fractional
Performance Share being paid in cash determined on the basis of the
value of a corresponding fractional share of common stock on the
business day preceding the date of payment. Said shares of common
stock and any cash amount shall be transferred to the Participant or
his or her beneficiary within sixty (60) days after the Company has
been notified in writing of the Disability or death of the
Participant and has been provided with any additional information,
forms or other documents it may reasonably request.
4. Hardship Payment: Notwithstanding an election made pursuant the Plan
or the Participant's continued employment with or provision of
services to the Company, if the Committee, upon written petition of
the Participant, determines, in the Committee's sole discretion, that
the Participant has suffered an unforeseeable financial emergency,
the Participant shall be entitled to receive, as soon as practicable
following such determination, payment sufficient to meet the cash
needs arising from the unforeseeable financial emergency, not in
excess of the number of whole Performance Shares then credited to the
Participant's Performance Share Account. Such payment shall be made,
at the election of the Participant, either (i) in the form of the
number of whole shares of common stock, the proceeds from the sale of
which would be sufficient to meet the cash needs arising from the
unforeseeable financial emergency, not in excess of the number of
whole Performance Shares then credited to the Participant's
Performance Share Account; (ii) in cash equal to the value on the
business day preceding the date of payment of the number of whole
shares of common stock available for payment under clause (i) of this
sentence; or (iii) in any combination of the methods of payment
provided for in clauses (i) and (ii) of this sentence. In the event
of a hardship payment in respect of the Participant's entire
Performance Share Account, any fractional Performance Share shall be
paid in cash determined on the basis of the value of a corresponding
fractional share
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of common stock on the business day preceding the date of payment.
For purposes of the foregoing, an unforeseeable financial emergency
is an unexpected need for cash arising from an illness, casualty
loss, sudden financial reversal, or other such unforeseeable
occurrence. Cash needs arising from foreseeable events such as
generally the purchase of a house or educational expenses for
children shall not be considered to be the result of an unforeseeable
financial emergency. Said shares of common stock and any cash amount
shall be transferred to the Participant as soon as practicable after
the Committee determines that the Participant has suffered an
unforeseeable financial emergency. The Participant's Performance
Share Account thereafter shall be reduced to reflect the foregoing
payment.
5. Early Withdrawal: Notwithstanding an election made pursuant to the
Plan or the Participant's continued employment with or provision of
services to the Company, the Participant, upon written petition to
the Committee at any time, shall be entitled to receive payment in
respect of all or any portion of the amount then credited to his or
her Performance Share Account, subject to a forfeiture penalty of six
percent (6%) of the amount of the payment requested by the
Participant. Such payment shall be made, at the election of the
Participant, either (i) in the form of the number of shares of common
stock equal to the number of whole Performance Shares requested by
the Participant in the written petition and then credited to the
Participant's Performance Share Account; (ii) in cash equal to the
value on the business day preceding the date of payment of the number
of whole shares of common stock available for payment under clause
(i) of this sentence; or (iii) in any combination of the methods of
payment provided for in clauses (i) and (ii) of this sentence. In the
event of an early withdrawal in respect of the Participant's entire
Performance Share Account, any fractional Performance Share shall be
paid in cash determined on the basis of the value of a corresponding
fractional share of common stock on the business day preceding the
date of payment. Said shares of common stock and any cash amount
shall be transferred to the Participant within sixty (60) days after
the Company has received the Participant's written petition. The
Participant's Performance Share Account thereafter shall be reduced
to reflect the foregoing payment and the six percent (6%) forfeiture
penalty.
(d) ADJUSTMENT OF PERFORMANCE GOALS. The Committee may, during the Award
Period, make such adjustments to Performance Goals as it may deem
appropriate, to compensate for, or reflect, (i) extraordinary or
non-recurring events experienced during an Award Period by the Company or
by any other corporation whose performance is relevant to the determination
of whether Performance Goals have been attained; (ii) any significant
changes that may have occurred during such Award Period in applicable
accounting rules or principles or changes in the Company's method of
accounting or in that of any other corporation whose performance is
relevant to the determination of whether an Award has been earned; (iii)
any significant changes that may have occurred during such Award Period in
tax laws or other laws or regulations that alter or affect the computation
of the measures of Performance Goals used for the calculation of Awards; or
(iv) any other factors which the Committee deems appropriate; provided,
however, that no such change may increase the amount of an Award that would
otherwise be payable to any "covered employee" as defined in Section
162(m)(3) of the Code.
9. RESTRICTED STOCK AWARDS
(a) AWARD OF RESTRICTED STOCK.
(i) The Committee shall have the authority (1) to grant Restricted Stock
Awards, (2) to issue or transfer Restricted Stock to Eligible
Persons, and (3) to establish terms, conditions and restrictions
applicable to such Restricted Stock, including the Restricted Period,
which may differ with respect to each grantee, the time or times at
which Restricted Stock shall be granted or become vested and the
number of shares to be covered by each grant.
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(ii) The Holder of a Restricted Stock Award shall execute and deliver to
the Company an Award Agreement with respect to the Restricted Stock
setting forth the restrictions applicable to such Restricted Stock.
If the Committee determines that the Restricted Stock shall be held
in escrow rather than delivered to the Holder pending the release of
the applicable restrictions, the Holder additionally shall execute
and deliver to the Company (1) an escrow agreement satisfactory to
the Committee and (2) the appropriate blank stock powers with
respect to the Restricted Stock covered by such agreements. If a
Holder shall fail to execute a Restricted Stock Award Agreement and,
if applicable, an escrow agreement and stock powers, the Award shall
be null and void. Subject to the restrictions set forth in Section
9(b), the Holder shall generally have the rights and privileges of a
stockholder as to such Restricted Stock, including the right to vote
such Restricted Stock, and to receive dividends paid thereon.
(iii) Upon the Award of Restricted Stock, the Committee shall cause a
Stock certificate registered in the name of the Holder to be issued
and, if it so determines, deposited together with the Stock powers
with an escrow agent designated by the Committee. If an escrow
arrangement is used, the Committee shall cause the escrow agent to
issue to the Holder a receipt evidencing any Stock certificate held
by it registered in the name of the Holder.
(b) RESTRICTIONS.
(i) Restricted Stock awarded to a Participant shall be subject to the
following restrictions until the expiration of the Restricted Period,
and to such other terms and conditions as may be set forth in the
applicable Award Agreement: (1) if an escrow arrangement is used, the
Holder shall not be entitled to delivery of the Stock certificate;
(2) the shares shall be subject to the restrictions on
transferability set forth in the Award Agreement; and (3) the shares
shall be subject to forfeiture to the extent provided in subparagraph
(d) and the Award Agreement and, to the extent such shares are
forfeited, the Stock certificates shall be returned to the Company,
and all rights of the Holder to such shares and as a stockholder
shall terminate without further obligation on the part of the
Company.
(ii) The Committee shall have the authority to remove any or all of the
restrictions on the Restricted Stock whenever it may determine that,
by reason of changes in applicable laws or other changes in
circumstances arising after the date of the Restricted Stock Award,
such action is appropriate.
(c) RESTRICTED PERIOD. The Restricted Period of Restricted Stock shall
commence on the Date of Grant and shall expire from time to time as to that
part of the Restricted Stock indicated in a schedule established by the
Committee and set forth in the written Award Agreement. The Restricted
Period shall generally be at least three years, provided, however, that it
may be no longer than one year if vesting is based on achievement of
Performance Goals.
(d) FORFEITURE PROVISIONS. Except to the extent determined by the
Committee and reflected in the underlying Award Agreement, in the event a
Participant terminates employment with or ceases to provide services to the
Company during a Restricted Period for any reason, that portion of the
Award with respect to which restrictions have not expired shall be
completely forfeited to the Company. In the event of such a forfeiture, the
amount of an Award that would otherwise be payable shall be reduced, but
not below zero, by the amount of any dividends previously paid to the
Holder with respect to the forfeited Restricted Stock.
(e) DELIVERY OF RESTRICTED STOCK. Upon the expiration of the Restricted
Period with respect to any shares of Stock covered by a Restricted Stock
Award, the restrictions set forth in Section 9(b) and the Award Agreement
shall be of no further force or effect with respect to shares of Restricted
Stock which have not then been forfeited. If an escrow arrangement is used,
upon such expiration, the Company shall deliver to the Holder, or his or
her beneficiary, without
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charge, the Stock certificate evidencing the shares of Restricted Stock
which have not then been forfeited and with respect to which the Restricted
Period has expired (to the nearest full share) and any cash dividends or
Stock dividends credited to the Holder's account with respect to such
Restricted Stock and the interest thereon, if any.
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(f) STOCK RESTRICTIONS. Each certificate representing Restricted Stock
awarded under the Plan shall bear the following legend until the end of the
Restricted Period with respect to such Stock:
"Transfer of this certificate and the shares represented hereby is
restricted pursuant to the terms of a Restricted Stock Agreement,
dated as of , between [Saratoga Resources, Inc.] and . A copy
of such Agreement is on file at the offices of the Company."
Stop transfer orders shall be entered with the Company's transfer agent and
registrar against the transfer of legended securities.
(g) DEFERRAL. Upon election by a Participant, a whole share of Restricted
Stock that would otherwise have been granted to the Participant shall
instead be made in the form of Performance Shares, and such Performance
Shares shall be credited to the Participant's Performance Share Account,
subject to the provisions of Section 8. Such credit of Performance Shares
shall be made as of the same date as Restricted Stock would have been
awarded to the Participant had no prior election been made. Any such
election shall be made by December 24 prior to the year in which the Award
for which the election is made will be made, and shall otherwise comply
with the requirements for elections in Section 8(c). If an event occurs
which would have caused forfeiture of the Restricted Stock for which an
election pursuant to this paragraph is made, then the equivalent
Performance Shares, along with any related Dividend Equivalents, shall be
forfeited.
10. NON-COMPETITION PROVISIONS
In addition to such other conditions as may be established by the
Committee, in consideration of the granting of Awards under the terms of the
Plan, the Committee, in its discretion, may include non-competition provisions
in the applicable Award Agreement.
11. GENERAL
(a) ADDITIONAL PROVISIONS OF AN AWARD. Awards under the Plan also may be
subject to such other provisions (whether or not applicable to the benefit
awarded to any other Participant) as the Committee determines appropriate
including, without limitation, provisions to assist the Participant in
financing the purchase of Stock upon the exercise of Options, provisions
for the forfeiture of or restrictions on resale or other disposition of
shares of Stock acquired under any Award, provisions giving the Company the
right to repurchase shares of Stock acquired under any Award in the event
the Participant elects to dispose of such shares, and provisions to comply
with Federal and state securities laws and Federal and state tax
withholding requirements. Any such provisions shall be reflected in the
applicable Award Agreement.
(b) PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise specifically
provided in the Plan, no person shall be entitled to the privileges of
stock ownership in respect of shares of Stock which are subject to Awards
hereunder until such shares have been issued to that person.
(c) GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by
governmental agencies as may be required. Notwithstanding any terms or
conditions of any Award to the contrary, the Company shall be under no
obligation to offer to sell or to sell and shall be prohibited from
offering to sell or selling any shares of Stock pursuant to an Award unless
such shares have been properly registered for sale pursuant to the
Securities Act with the Securities and Exchange Commission or unless the
Company has received an opinion of counsel, satisfactory to the Company,
that such shares may be offered or sold without such registration pursuant
to an available exemption therefrom and the terms and conditions of such
exemption have been fully complied with. The Company shall be under no
obligation to register for sale under the Securities Act any of the shares
of Stock to be offered or sold under the Plan. If the shares of Stock
offered for sale or sold under the Plan are offered or sold pursuant to an
exemption from registration
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<PAGE>
under the Securities Act, the Company may restrict the transfer of such
shares and may legend the Stock certificates representing such shares in
such manner as it deems advisable to ensure the availability of any such
exemption.
(d) TAX WITHHOLDING. Notwithstanding any other provision of the Plan, the
Company or a Subsidiary, as appropriate, shall have the right to deduct
from all Awards cash and/or Stock, valued at Fair Market Value on the date
of payment, in an amount necessary to satisfy all Federal, state or local
taxes as required by law to be withheld with respect to such Awards and, in
the case of Awards paid in Stock, the Holder may be required to pay to the
Company prior to delivery of such Stock, the amount of any such taxes which
the Company is required to withhold, if any, with respect to such Stock.
The Company shall accept shares of Stock of equivalent Fair Market Value in
payment of such withholding tax obligations if the Holder of the Award
elects to make payment in such manner.
(e) CLAIM TO AWARDS AND EMPLOYMENT OR SERVICE RIGHTS. No employee or
other person shall have any claim or right to be granted an Award under the
Plan or, having been selected for the grant of an Award, to be selected for
a grant of any other Award. Neither the Plan nor any action taken hereunder
shall be construed as giving any Participant any right to be retained in
the employ or service of the Company or any Subsidiary.
(f) DESIGNATION AND CHANGE OF BENEFICIARY. Each Participant may file with
the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the rights or amounts payable
with respect to an Award due under the Plan upon his or her death. A
Participant may, from time to time, revoke or change his or her beneficiary
designation without the consent of any prior beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt. If no beneficiary designation
is filed by the Participant, the beneficiary shall be deemed to be his or
her spouse or, if the Participant is unmarried at the time of death, his or
her estate.
(g) PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. If the Committee shall
find that any person to whom any amount is payable under the Plan is unable
to care for his or her affairs because of illness or accident, or is a
minor, or has died, then any payment due to such person or his or her
estate (unless a prior claim therefor has been made by a duly appointed
legal representative) may, if the Committee so directs the Company, be paid
to his or her spouse, child, relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper recipient on behalf of such person otherwise entitled to payment.
Any such payment shall be a complete discharge of the liability of the
Committee and the Company therefor.
(h) NO LIABILITY OF COMMITTEE MEMBERS. No member of the Committee shall
be personally liable by reason of any contract or other instrument executed
by such member or on such member's behalf in such member's capacity as a
member of the Committee nor for any mistake of judgment made in good faith,
and the Company shall indemnify and hold harmless each member of the
Committee and each other employee, officer or director of the Company to
whom any duty or power relating to the administration or interpretation of
the Plan may be allocated or delegated, against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement
of a claim) arising out of any act or omission to act in connection with
the Plan unless arising out of such person's own fraud or willful bad
faith; provided, however, that approval of the Board shall be required for
the payment of any amount in settlement of a claim against any such person.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
(i) GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the internal laws of the State of Connecticut without
regard to the principles of conflicts of law thereof.
(j) FUNDING. No provision of the Plan shall require the Company, for the
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to
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<PAGE>
which contributions are made or otherwise to segregate any assets, nor
shall the Company maintain separate bank accounts, books, records or other
evidence of the existence of a segregated or separately maintained or
administered fund for such purposes. Holders shall have no rights under the
Plan other than as unsecured general creditors of the Company, except that
insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
(k) NONTRANSFERABILITY. A person's rights and interest under the Plan,
including amounts payable, may not be sold, assigned, donated, or
transferred or otherwise disposed of, mortgaged, pledged or encumbered
except, in the event of a Holder's death, to a designated beneficiary to
the extent permitted by the Plan, or in the absence of such designation, by
will or the laws of descent and distribution; provided, however, the
Committee may, in its sole discretion, allow in an Award Agreement for
transfer of Awards other than Incentive Stock Options to other persons or
entities.
(l) RELIANCE ON REPORTS. Each member of the Committee and each member of
the Board shall be fully justified in relying, acting or failing to act,
and shall not be liable for having so relied, acted or failed to act in
good faith, upon any report made by the independent public accountants of
the Company and its Subsidiaries and upon any other information furnished
in connection with the Plan by any person or persons other than such
member.
(m) RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension,
retirement, profit sharing, group insurance or other benefit plan of the
Company except as otherwise specifically provided in such other plan.
(n) EXPENSES. The expenses of administering the Plan shall be borne by
the Company.
(o) TITLES AND HEADINGS. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
(p) CHANGE-IN-CONTROL. Notwithstanding anything in the Plan to the
contrary, in the event of a "Change-in-Control", as defined below, all
Awards made pursuant to the Plan shall become fully vested immediately, and
all Options shall be immediately exercisable (provided that if the
"Change-in-Control" occurs with respect to a Subsidiary, only Awards and
Options granted to employees of such Subsidiary shall be affected), (i) if
the Committee so provides before or after a "Change-in-Control", (ii) if
the Committee has so provided in an Award Agreement or (iii) if so provided
in an employment agreement of an employee granted an Award. A
"Change-in-Control" shall be deemed to have occurred if after the date an
Award is granted (i) a public announcement shall be made or a report on
Schedule 13D shall be filed with the Securities and Exchange Commission
pursuant to Section 13(d) of the Exchange Act disclosing that any Person
(as defined below), other than the Company or a Subsidiary or any employee
benefit plan sponsored by the Company or a Subsidiary, is the beneficial
owner (as the term is defined in Rule 13d-3 under the Exchange Act)
directly or indirectly, of thirty percent (30%) or more of the total voting
power represented by the Company's or a Subsidiary's then outstanding
voting common stock (calculated as provided in paragraph (d) of Rule 13d-3
under the Exchange Act in the case of rights to acquire voting common
stock); or (ii) any Person, other than the Company or a Subsidiary or any
employee benefit plan sponsored by the Company or a Subsidiary, shall
purchase shares pursuant to a tender offer or exchange offer to acquire any
voting common stock of the Company or a Subsidiary (or securities
convertible into such voting common stock) for cash, securities or any
other consideration, provided that after consummation of the offer, the
Person in question is the beneficial owner directly or indirectly, of
thirty percent (30%) or more of the total voting power represented by the
Company's or a Subsidiary's then outstanding voting common stock (all as
calculated under clause (i)); or (iii) the stockholders of the Company or a
Subsidiary shall approve (A) any consolidation or merger of the Company or
a Subsidiary in which the Company or a Subsidiary is not the continuing or
surviving corporation (other than a merger of the Company or a Subsidiary
in which holders of the outstanding capital stock of the Company or the
Subsidiary immediately prior to the merger have the same proportionate
ownership of the outstanding capital stock of the surviving corporation
immediately
C-15
<PAGE>
after the merger as immediately before), or pursuant to which the
outstanding capital stock of the Company or a Subsidiary would be converted
into cash, securities or other property, or (B) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions)
of all or substantially all the assets of the Company or a Subsidiary; or
(iv) there shall have been a change in the composition of the board of
directors of the Company or a Subsidiary at any time during any consecutive
twenty-four (24) month period such that "continuing directors" cease for
any reason to constitute at least a majority of the Board unless the
election, or the nomination for election of each new Director was approved
by a vote of at least two-thirds (2/3) of the Directors then still in
office who were Directors at the beginning of such period; or (v) the board
of directors of the Company or a Subsidiary, by a vote of a majority of all
the Directors, adopts a resolution to the effect that a "Change-in-Control"
has occurred for purposes of this Agreement. "Person" shall mean any
individual, corporation, partnership, company or other entity, and shall
include a "group" within the meaning of Section 13(d)(3) of the Exchange
Act.
12. CHANGES IN CAPITAL STRUCTURE
Awards granted under the Plan and any Award Agreements shall be subject to
equitable adjustment or substitution, as determined by the Committee in its
sole discretion, as to the number, price or kind of a share of Stock or other
consideration subject to such Awards (i) in the event of changes in the
outstanding common stock or in the capital structure of the Company by reason
of stock dividends, stock splits, reverse stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of any
such Award, (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, Participants in the
Plan, or (iii) upon the occurrence of any other event which otherwise warrants
equitable adjustment because it interferes with the intended operation of the
Plan. In addition, in the event of any such corporate or other event, the
aggregate number of shares of Stock available under the Plan and the maximum
number of shares of Stock with respect to which any one person may be granted
in connection with Awards shall be appropriately adjusted by the Committee,
whose determination shall be conclusive.
Notwithstanding the above, in the event of any of the following:
A. The Company is merged or consolidated with another corporation or
entity and, in connection therewith, consideration is received by
stockholders of the Company in a form other than stock or other equity
interests of the surviving entity;
B. All or substantially all of the assets of the Company are acquired by
another person;
C. The reorganization or liquidation of the Company; or
D. The Company shall enter into a written agreement to undergo an event
described in clauses A, B or C above,
then the Committee may, in its sole discretion and upon at least 10 days
advance notice to the affected persons, cancel any outstanding Awards and pay
to the Holders thereof, in cash, the value of such Awards based upon the price
per share of Stock received or to be received by other stockholders of the
Company in the event. The terms of this Section 12 may be varied by the
Committee in any particular Award Agreement.
13. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
C-16
<PAGE>
14. AMENDMENT AND TERMINATION
The Board may at any time terminate the Plan. With the express written
consent of an individual Participant, the Committee may cancel or reduce or
otherwise alter outstanding Awards. The Committee may, at any time, or from
time to time, amend or suspend and, if suspended, reinstate, the Plan in whole
or in part; provided that any such amendment shall be contingent on obtaining
the approval of the stockholders of the Company if such amendment would
materially increase benefits available to Participants or the Committee
determines that such approval is necessary to comply with any requirement of
law, including the requirements for qualification of Incentive Stock Options or
rule of any stock exchange, stock market or automated quotation system on which
the Company's equity securities are traded or quoted.
C-17
<PAGE>
ANNEX D
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan. The purpose of the 1999 Employee Stock Purchase
Plan is to secure for [Saratoga Resources, Inc.] (the Company) and its
stockholders the benefits of the incentive inherent in the ownership of the
Company's common stock by present and future employees of the Company and its
subsidiaries. The Plan is intended to comply with the provisions of Sections
421, 423 and 424 of the Internal Revenue Code of 1986, as amended (the Code),
and the Plan shall be administered, interpreted, and construed in accordance
with such provisions.
2. Shares Reserved for the Plan. There shall be reserved for issuance and
purchase by employees under the Plan an aggregate of 450,000 shares of common
stock of the Company (common stock), subject to adjustment as provided in
Section 12. Shares subject to the Plan may be shares now or hereafter
authorized but unissued, or shares that were once issued and subsequently
reacquired by the Company.
3. Administration of the Plan. The Plan shall be administered at the
expense of the Company by a committee appointed by the board of directors
consisting of not less than two members of the Board who shall serve at the
pleasure of the Board and which shall be designated as the Compensation
Committee (the Committee). No member of the Committee shall be eligible to
participate in the Plan. Subject to the express provisions of the Plan, the
Committee shall have authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable in administering the Plan, all of which
determinations shall be final and binding upon all persons unless otherwise
determined by the board of directors. A quorum of the Committee shall consist
of a majority of its members and the Committee may act by vote of a majority of
its members at a meeting at which a quorum is present, or without a meeting by
a written consent to the action taken signed by all members of the Committee.
4. Eligible Employees. All employees of the Company, and its subsidiaries
shall be eligible to participate in the Plan, provided each of such employees:
a. has customary employment of a minimum of 20 hours per week,
b. has customary employment for more than five months in a calendar year,
and
c. does not own, immediately after the right is granted, stock possessing
5% or more of the total combined voting power or value of all classes of
stock of the Company or a subsidiary company.
In determining whether a company is a subsidiary, the rules of Section
424(f) of the Code shall be followed, and in determining stock ownership under
this paragraph the rules of Section 424(d) of the Code shall apply and stock
which the employee may purchase under outstanding options shall be treated as
stock owned by the employee. For all purposes of the Plan, "employment" shall
be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Employees eligible to
participate in the Plan pursuant to the provisions of this Section 4 are
hereinafter referred to as "Eligible Employees."
5. Election to Participate. Each Eligible Employee may participate in the
Plan by filing with the Committee an election to purchase form (the Form)
authorizing specified regular payroll deductions. Payroll deductions may be in
any amount specified by an employee, but the annual rate of deductions may not
exceed 20% of the employee's annual rate of base compensation (as defined by
the Committee) in effect at the time of the filing of the Form. All regular
payroll deductions shall be credited to a non-interest bearing account which
the Company shall establish in the name of each participant (Payroll Deduction
Account). Eligible Employees who so elect to participate in the Plan are
hereinafter referred to as "Participating Employees."
All funds in Payroll Deduction Accounts may be used by the Company for any
corporate purpose, subject to the right of a Participating Employee to withdraw
at any time an amount equal to
D-1
<PAGE>
the balance accumulated in the employee's Payroll Deduction Account. A
Participating Employee may at any time, but not more than once during any
calendar quarter, increase or decrease the employee's payroll deduction by
filing a new Form which shall become effective on the following payroll date.
6. Limitation on Number of Shares Which an Employee May Purchase. No
Eligible Employee may be granted an option under the Plan that permits the
employee to purchase stock under the Plan (and any other employee stock
purchase plans qualified under Section 423 of the Code and sponsored by the
Company or any of its subsidiaries) at a rate which exceeds $25,000 in fair
market value of such stock (determined at the time the option is granted) for
each calendar year in which any such option granted to such individual is
outstanding at any time.
The foregoing limitation shall be interpreted by the Committee in
accordance with applicable rules and regulations issued under the Code.
7. Purchase Price. The Purchase Price for each whole and fractional share
of common stock shall be 85% (or such higher percentage as the Committee may
determine from time to time) of the fair market value of such whole or
fractional share on the Investment Date as hereinafter defined, provided that
the Purchase Price shall in no event be less than the par value of such share.
Fair market value on a given date means (i) if the common stock is listed
on a national securities exchange, the mean between the highest and lowest sale
prices reported as having occurred on the primary exchange on which the common
stock is listed and traded on the date prior to such date, or, if there is no
such sale on that date, then on the last preceding date on which such a sale
was reported; (ii) if the common stock is not listed on any national securities
exchange but is quoted in the National Market System of The Nasdaq Stock Market
on a last sale basis, the average between the high bid price and low ask price
reported on the date prior to such date, or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported; or (iii) if
the common stock is not listed on a national securities exchange nor quoted in
the National Market System of The Nasdaq Stock Market on a last sale basis, the
amount determined by the Committee to be the fair market value based upon a
good faith attempt to value the common stock accurately.
8. Method of Purchase and Investment Accounts. The last business day of
the third month in each calendar quarter commencing on or after the effective
date of the Plan shall be known as an Investment Date. Each Participating
Employee having funds in the employee's Payroll Deduction Account on an
Investment Date shall be deemed, without any further action, to have been
granted and have exercised such employee's right to purchase the number of
whole shares which the funds in such employee's Payroll Deduction Account could
purchase at the Purchase Price on such Investment Date, subject to the
restrictions set forth in Section 6. All whole so purchased shall be credited
to each Participating Employee and any balance in the employee's Payroll
Deduction Account shall be retained in such Account.
9. Rights as a Stockholder. Upon each Investment Date, or as soon
thereafter as practicable, a certificate for the shares of common stock
credited to the employee will be forwarded to the employee or such full shares
will otherwise be credited to the employee.
10. Rights Not Transferable. Rights under the Plan are not transferable by
a Participating Employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
11. Adjustment for Changes in the Company's Stock. In the event of a
subdivision of outstanding shares of common stock, or the payment of a stock
dividend thereon, the number of shares reserved or authorized to be reserved
under the Plan shall be increased proportionately, and such other adjustment
shall be made as may be deemed necessary or equitable by the Committee. In the
event of any other change affecting the common stock, such adjustments shall be
made as may be deemed equitable by the Committee to give proper effect to such
event subject to the limitations of Section 424 of the Code.
D-2
<PAGE>
12. Retirement, Termination and Death. In the event of a Participating
Employee's retirement or other termination of employment, or in the event that
the employee otherwise ceases to be an Eligible Employee, the amount in the
employee's Payroll Deduction Account shall be refunded to the employee and, in
the event of death, shall be paid to the employee's designated beneficiary
under the Plan.
13. Amendment of the Plan. The board of directors may at any time amend
the Plan in any respect, except that, without the approval of the stockholders
of the Company, no amendment shall be made (a) changing the number of shares to
be reserved under the Plan (other than as provided in Section 11), or (b) the
effect of which will cause it to fail to meet the requirements of Section 423
of the Code.
14. Termination of the Plan. The Plan and all rights of employees
hereunder shall terminate:
10. on the Investment Date that Participating Employees become entitled to
purchase a number of shares greater than the number of reserved shares
remaining available for purchase; or
10. at any time, at the discretion of the board of directors, effective as
of the completion of any calendar quarter.
In the event that the Plan terminates under circumstances described in
(a) above, reserved shares remaining as of the termination date shall be
issued to Participating Employees on a pro rata basis.
15. Effective Date of the Plan. The Plan shall become effective on ,
1999; provided the Plan has been approved by the stockholders of the Company in
a manner permitted by Section 423 of the Code by such date.
16. Government and Other Regulations. The Plan, and the grant and exercise
of the rights to purchase shares hereunder, and the Company's obligation to
sell and deliver shares upon the exercise of rights to purchase shares, shall
be subject to all applicable Federal, State and foreign laws, rules and
regulations, and to such approvals by any regulatory or government agency as
may, in the opinion of counsel for the Committee, be required.
D-3
<PAGE>
PROXY
SARATOGA RESOURCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SARATOGA RESOURCES, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS -- AUGUST 10, 1999
The undersigned stockholder hereby appoints Thomas F. Cooke and and
each of them, the true and lawful attorneys and proxies of the undersigned with
full power of substitution, to vote all shares of Common Stock of Saratoga
Resources, Inc., which the undersigned is entitled to vote at the Special
Meeting of Stockholders of the Saratoga to be held on August 10, 1999 and at
any and all adjournments and postponements thereof, for the transaction of such
business as may properly come before the Meeting, including the items set forth
on the reverse side hereof.
The shares represented by this Proxy will be voted in the manner directed
herein, but if no direction is made with respect to the voting of Common Stock,
this Proxy will be voted FOR (i) Proposal 1 -- The election of 5 new members of
Saratoga's board of directors; (ii) Proposal 2 -- The amendment of the
certificate of incorporation of Saratoga to effect a 1 for 0.06493 reverse stock
split of the issued and outstanding common stock of Saratoga; (iii) Proposal 3
- -- The amendment of the certificate of incorporation to change the name of
Saratoga Resources, Inc., to OptiCare Health Systems, Inc.; (iv) Proposal 4 --
The amendment of the certificate of incorporation to require Saratoga to
indemnify directors and officers to the maximum extent permitted by law; (v)
Proposal 5 -- The adoption of the Performance Stock Program; and (vi) Proposal 6
- -- The adoption of the Employee Stock Purchase Plan.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(Please sign on reverse side)
(Over)
<PAGE>
PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE. [X]
The Board of Directors recommends a vote FOR the Proposals.
1. To elect 5 new members of Saratoga's board of directors.
[ ]
FOR all nominees listed below
(except as marked to the contrary below) [ ]
WITHHOLD AUTHORITY to vote for all
nominees listed below
Dean J. Yimoyines, Steven L. Ditman, Allan L.M. Barker,
Martin E. Franklin and John F. Croweak
----------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any
individual nominee, strike a line through or otherwise
strike the nominee's name in the list above.
2. To vote upon a proposal to amend the certificate of
incorporation of Saratoga to effect a one for 0.06493
reverse stock split of the issued and outstanding
common stock of Saratoga.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To vote upon a proposal to amend the certificate
of incorporation to change the name of Saratoga
Resources, Inc., to OptiCare Health Systems, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To vote upon a proposal to amend the certificate
of incorporation to require Saratoga to indemnify
directors and officers to the maximum extent
permitted by law.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To vote upon a proposal to adopt the
Performance Stock Program.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. To vote upon a proposal to adopt the Employee
Stock Purchase Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion the proxies are authorized to vote upon such other business
as may properly come before the meeting.
Signature(s)
- -------------------------------------------------------------------------------
Date
- -------------------------------------------------------------------------------
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, employees, agents and
controlling persons of a corporation under certain conditions and subject to
certain limitations. Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer or agent of the corporation or another enterprise if serving
at the request of the corporation. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner he reasonably believed to be in
or not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court of chancery or the
court in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Saratoga's bylaws (Exhibit 3.2 hereto) provides for the indemnification of
directors, officers and other authorized representatives of Saratoga to the
maximum extent permitted by the Delaware General Corporation Law, as may be
amended (but in the case of such amendment, only to the extent that such
amendment permits Saratoga to provide broader indemnification rights than the
law permitted the Corporation to provide prior to the Amendment) against all
expense, loss and liability (including, without limitation, judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees),
actually and necessarily incurred or suffered by such person in connection with
the defense of or as a result of such proceeding, or in connection with any
appeal therein. Saratoga's bylaws permit it to purchase insurance for the
indemnification of directors, officers and employees to the full extent
permitted by the Delaware General Corporation Law.
The bylaws provide that the right to indemnification conferred in the
bylaws are contract rights and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that if the Delaware General
Corporation Law requires: the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this bylaw or otherwise.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
(a) Exhibits:
2. Agreement and Plan of Merger, dated as of April 12, 1999, among the
Registrant, OptiCare Shellco Merger Corporation, Prime Shellco Merger
Corporation, OptiCare Eye Health Centers, Inc., and PrimeVision Health, Inc.,
Inc., (incorporated by reference from Annex A to the Proxy
Statement/Prospectus).
3.1 Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit
3.1 of the Form 10-KSB filed February 3, 1995.
3.2 Form of Certificate of Amendment of Certificate of Incorporation of Saratoga
Resources, Inc. (incorporated by reference to Annex B to the Proxy
Statement/Prospectus).**
3.3 By-laws of Registrant adopted January 20, 1994, as amended September 14,
1996. Incorporated by referenced to the Form 10-QSB filed November 13, 1996,
and filed as Exhibit 3.2 thereto.
4.1 Form of Performance Stock Program (incorporated by reference to Annex C of
the Proxy Statement/Prospectus).+*
4.2 Form of Employee Stock Purchase Plan (incorporated by reference to Annex D
of the Proxy Statement/Prospectus).+*
5.1 Opinion of Kane Kessler, P.C.**
8.1 Tax Opinion of Deloitte & Touche LLP, dated , 1999.***
10.1 Compromise and Settlement Agreement dated May 7, 1996, by and between
Saratoga Resources, Inc. a Delaware corporation, Saratoga Resources, Inc., a
Texas corporation, Lobo Operating, Inc., a Texas corporation, Lobo Energy, Inc.,
a Texas corporation, Thomas F. Cooke, Joseph T. Kaminski, Randall F. Dryer,
and Internationale Nederlanden (U.S.) Capital Corporation, filed as Exhibit 1 to
the Company's Report on Form 8-K dated May 7, 1996, incorporated herein by
reference.
10.2 Purchase and Sale Agreement dated May 7, 1996, by and between Internationale
Nederlanden (U.S.) Capital Corporation and Prime Energy Corporation, filed as
Exhibit 2 to the Company's Report on Form 8-K dated May 7, 1996,
incorporated herein by reference.
10.3 Assignment and Bill of Sale dated May 7, 1996, by and between Saratoga
Resources, Inc., a Delaware corporation and Prime Energy Corporation, filed as
Exhibit 3 to the Company's Report on Form 8-K dated May 7, 1996,
incorporated herein by reference.
10.4 Settlement Agreement and Full and Final Release dated March 10, 1997, by and
between Saratoga Resources, Inc., a Delaware corporation, Thomas F. Cooke,
Randall F. Dryer, Dryer, Ltd., a Texas Family Partnership and Joseph T.
Kaminski, filed as Exhibit 1 to the Company's Report on Form 8-K dated
March 12, 1997, incorporated herein by reference.
10.5 Stock Purchase Agreement dated May 17, 1997, by and among the Company,
Randall F. Dryer, and Dryer, Ltd., incorporated herein by reference.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.6 Purchase and Sale agreement dated effective November 12, 1998, between
Saratoga Holdings and The Premium Group. Incorporated by reference to the
Registration Statement on Form SB-2 of Saratoga Holdings filed with the SEC
in December 1, 1998, Exhibit 10.1, incorporated herein by reference.
10.7 Service Agreement dated as of November 12, 1998, between Saratoga Holdings
and Premium Recoveries, Inc. Incorporated by reference to the Registration
Statement on Form SB-2 of Saratoga Holdings filed by Saratoga with the SEC in
December 1, 1998, Exhibit 10.2, incorporated herein by reference.
10.8 Settlement agreement dated as of April 9, 1999, among Prime, Dr. Allan L.M.
Barker, Dr. D. Blair Harrold, Optometric Eye Care Center, P.A., Steven B.
Waite, Bank Austria AG, and Bank Austria Bank Austria Corporate
Finance, Inc. (supersedes the form filed with the Registration Statement on
Form S-4 filed with the Commission on May 14, 1999).**
10.9 Vision care capitation agreement between OptiCare and Blue Cross & Blue
Shield of Connecticut, Inc. (and its affiliates) dated 10/23/95.**
10.10 Eye care services agreement between OptiCare and Anthem Health Plans, Inc.
(d/b/a Anthem Blue Cross and Blue Shield of Connecticut), effective 11/1/98.**
10.11 Contracting provider services agreement dated 4/26/96, and amendment thereto
dated as of 1/1/99, between Blue Cross & Blue Shield of Connecticut, Inc., and
OptiCare.**
10.12 Form of employment agreement between the Registrant and Dean J. Yimones,
M.D., to be effective upon closing of the mergers.***
10.13 Form of employment agreement between the Registrant and Steven L. Ditman,
to be effective upon closing of the mergers.***
10.14 Form of employment agreement between the Registrant and Dr. Allan L. M.
Barker, to be effective upon closing of the mergers.***
10.15 Form of employment agreement between the Registrant and Dr. D. Blair
Harrold, to be effective upon closing of the mergers.***
10.16 Lease dated September 22, 1987 and lease extension agreement dated
December 12, 1997 by and between Cross Street Medical Building Partnership,
as landlord, and Ophthalmic Physicians and Surgeons, P.C., as tenant, for
premises located at 40 Cross Street, Norwalk, Connecticut.**
10.17 Lease agreement dated September 1, 1995 by and between French's Mill
Associates, as landlord, and OptiCare Eye Health Center P.C., as tenant, for
premises located at 87 Grandview Avenue, Waterbury, Connecticut.**
10.18 Lease agreement dated September 30, 1997 by and between French's Mill
Associates II, LLP, as landlord, and OptiCare Eye Health Center P.C., as tenant,
for premises located at 160 Robbins Street, Waterbury, Connecticut (upper
level).**
10.19 Lease agreement dated September 1, 1995 and amendment to lease dated
September 30, 1997 by and between French's Mill Associates II, LLP, as
landlord, and OptiCare Eye Health Center P.C., as tenant, for premises located
at 160 Robbins Street, Waterbury, Connecticut (lower level).**
10.20 Lease agreement dated September 1, 1995 between O.C. Realty Associates
Limited Partnership, as landlord, and OptiCare, as tenant, for premises located
at 54 Park Lane, New Milford, Connecticut.**
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.21 Form of health services organization agreement between Prime and eye care
providers.**
10.22 Professional services and support agreement dated 12/1/95 between OptiCare
Eye Health Systems, Inc., a Connecticut corporation, and OptiCare P.C., a
Connecticut professional corporation.**
16 Letter regarding Change in Certifying Accountants. Incorporated by reference to
Exhibit 16 of the Amendment No. 1 filed April 6, 1999, of Registrant's Current
Report on Form 8-K dated March 29, 1999.*
21 List of Subsidiaries of the Registrant.*
23.1 Consent of Ernst & Young LLP with respect to the financial statements of the
Registrant.**
23.2 Consent of Hein + Associates LLP.**
23.3 Consent of Deloitte & Touche LLP with respect to the combined financial
statements of Opticare Eye Health Centers, Inc. and Affiliate.**
23.4 Consent of Ernst & Young LLP with respect to the financial statements of the
PrimeVision Health, Inc.**
23.5 Consent of Kane Kessler, P.C. (included in Exhibit 5.1).**
23.6 Consent of Dean J. Yimoyines, M.D.*
23.7 Consent of Steven L. Ditman.*
23.8 Consent of Martin E. Franklin.*
23.9 Consent of Allan L.M. Barker.*
23.10 Consent of John F. Croweak.*
</TABLE>
- ----------
+ Management or compensatory plan
* Filed with the Registration Statement on Form S-4 filed with the
Commission on May 14, 1999.
** Filed herewith.
*** To be filed by amendment
(b) Financial Statement Schedules:
All schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
such registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(4) The registrant undertakes that every prospectus:
(a) that is filed pursuant to paragraph (3) immediately preceding, or
(b) that purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(7) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(8) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and Saratoga
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Austin, State of Texas,
on June 23, 1999.
SARATOGA RESOURCES, INC.
By: /s/ Thomas F. Cooke
----------------------------------------- Date: June 23, 1999
Thomas F. Cooke, Chairman of the Board of Directors,
Chief Executive Officer and Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
/s/ Thomas F. Cooke
- ----------------------------------------------- Date: June 23, 1999
Thomas F. Cooke, Director
/s/ Kevin M. Smith
- ----------------------------------------------- Date: June 23, 1999
Kevin M. Smith, Director
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------------------------- -----
<S> <C> <C>
2. Agreement and Plan of Merger, dated as of April 12, 1999, among the Registrant,
OptiCare Shellco Merger Corporation, Prime Shellco Merger Corporation, OptiCare
Eye Health Centers, Inc., and PrimeVision Health, Inc., Inc., (incorporated by
reference from Annex A to the Proxy Statement/Prospectus).
3.1 Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 of
the Form 10-KSB filed February 3, 1995.
3.2 Form of Certificate of Amendment of Certificate of Incorporation of Saratoga
Resources, Inc. (incorporated by reference to Annex B to the Proxy
Statement/Prospectus).**
3.3 By-laws of Registrant adopted January 20, 1994, as amended September 14, 1996.
Incorporated by referenced to the Form 10-QSB filed November 13, 1996, and filed as
Exhibit 3.2 thereto.
4.1 Form of Performance Stock Program (incorporated by reference to Annex C of the
Proxy Statement/Prospectus).+*
4.2 Form of Employee Stock Purchase Plan (incorporated by reference to Annex D of
the Proxy Statement/Prospectus).+*
5.1 Opinion of Kane Kessler, P.C.**
8.1 Tax Opinion of Deloitte & Touche LLP, dated , 1999.***
10.1 Compromise and Settlement Agreement dated May 7, 1996, by and between Saratoga
Resources, Inc. a Delaware corporation, Saratoga Resources, Inc., a Texas
corporation, Lobo Operating, Inc., a Texas corporation, LEI, Inc., a Texas
corporation, Thomas F. Cooke, Joseph T. Kaminski, Randall F. Dryer, and
Internationale Nederlanden (U.S.) Capital Corporation, filed as Exhibit 1 to the
Company's Report on Form 8-K dated May 7, 1996, incorporated herein by reference.
10.2 Purchase and Sale Agreement dated May 7, 1996, by and between Internationale
Nederlanden (U.S.) Capital Corporation and Prime Energy Corporation, filed as
Exhibit 2 to the Company's Report on Form 8-K dated May 7, 1996, incorporated
herein by reference.
10.3 Assignment and Bill of Sale dated May 7, 1996, by and between Saratoga Resources,
Inc., a Delaware corporation and Prime Energy Corporation, filed as Exhibit 3 to the
Company's Report on Form 8-K dated May 7, 1996, incorporated herein by reference.
10.4 Settlement Agreement and Full and Final Release dated March 10, 1997, by and
between Saratoga Resources, Inc., a Delaware corporation, Thomas F. Cooke, Randall
F. Dryer, Dryer, Ltd., a Texas Family Partnership and Joseph T. Kaminski, filed as
Exhibit 1 to the Company's Report on Form 8-K dated March 12, 1997, incorporated
herein by reference.
10.5 Stock Purchase Agreement dated May 17, 1997, by and among the Company, Randall
F. Dryer, and Dryer, Ltd., incorporated herein by reference.
10.6 Purchase and Sale agreement dated effective November 12, 1998, between SHI and
The Premium Group. Incorporated by reference to the Registration Statement on
Form SB-2 of SHI filed with the SEC in December 1, 1998, Exhibit 10.1, incorporated
herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.7 Service Agreement dated as of November 12, 1998, between SHI and Premium
Recoveries, Inc. Incorporated by reference to the Registration Statement on Form
SB-2 of SHI filed by Saratoga with the SEC in December 1, 1998, Exhibit 10.2,
incorporated herein by reference.
10.8 Settlement agreement dated as of April 9, 1999, among Prime, Dr. Allan L.M. Barker,
Dr. D. Blair Harrold, Optometric Eye Care Center, P.A., Steven B. Waite, Bank
Austria AG, and Bank Austria Bank Austria Corporate Finance, Inc. (supersedes the
Form filed with the Registration Statement on Form S-4 filed with the Commission on
May 14, 1999).**
10.9 Vision care capitation agreement between OptiCare and Blue Cross & Blue Shield of
Connecticut, Inc. (and its affiliates) dated 10/23/95.**
10.10 Eye care services agreement between OptiCare and Anthem Health Plans, Inc. (d/b/a
Anthem Blue Cross and Blue Shield of Connecticut), effective 11/1/98.**
10.11 Contracting provider services agreement dated 4/26/96, and amendment thereto dated
as of 1/1/99, between Blue Cross & Blue Shield of Connecticut, Inc., and OptiCare.**
10.12 Form of employment agreement between the Registrant and Dean J. Yimones, M.D.,
to be effective upon closing of the mergers.***
10.13 Form of employment agreement between the Registrant and Steven L. Ditman, to be
effective upon closing of the mergers.***
10.14 Form of employment agreement between the Registrant and Dr. Allan L. M. Barker,
to be effective upon closing of the mergers.***
10.15 Form of employment agreement between the Registrant and Dr. D. Blair Harrold, to
be effective upon closing of the mergers.***
10.16 Lease dated September 22, 1987 and lease extension agreement dated December 12,
1997 by and between Cross Street Medical Building Partnership, as landlord, and
Ophthalmic Physicians and Surgeons, P.C., as tenant, for premises located at 40 Cross
Street, Norwalk, Connecticut.**
10.17 Lease agreement dated September 1, 1995 by and between French's Mill Associates,
as landlord, and OptiCare Eye Health Center P.C., as tenant, for premises located at
87 Grandview Avenue, Waterbury, Connecticut.**
10.18 Lease agreement dated September 30, 1997 by and between French's Mill
Associates II, LLP, as landlord, and OptiCare Eye Health Center P.C., as tenant, for
premises located at 160 Robbins Street, Waterbury, Connecticut (upper level).**
10.19 Lease agreement dated September 1, 1995 and amendment to lease dated
September 30, 1997 by and between French's Mill Associates II, LLP, as landlord, and
OptiCare Eye Health Center P.C., as tenant, for premises located at 160 Robbins
Street, Waterbury, Connecticut (lower level).**
10.20 Lease agreement dated September 1, 1995 between O.C. Realty Associates Limited
Partnership, as landlord, and OptiCare, as tenant, for premises located at 54 Park
Lane, New Milford, Connecticut.**
10.21 Form of health services organization agreement between Prime and eye care
providers.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------------------- -----
<S> <C> <C>
10.22 Professional services and support agreement dated 12/1/95 between OptiCare Eye
Health Systems, Inc., a Connecticut corporation, and OptiCare P.C., a Connecticut
professional corporation.**
16 Letter regarding Change in Certifying Accountants. Incorporated by reference to
Exhibit 16 of the Amendment No. 1 filed April 6, 1999, of Registrant's Current
Report on Form 8-K dated March 29, 1999.*
21 List of Subsidiaries of the Registrant.*
23.1 Consent of Ernst & Young LLP with respect to the financial statements of the
Registrant.*
23.2 Consent of Hein + Associates LLP.*
23.3 Consent of Deloitte & Touche LLP with respect to the combined financial statements
of Opticare Eye Health Center, Inc. and Affiliate.*
23.4 Consent of Ernst & Young LLP with respect to the financial statements of the
PrimeVision Health, Inc.*
23.5 Consent of Kane Kessler, P.C. (included in Exhibit 5.1).**
23.6 Consent of Dean J. Yimoyines, M.D.*
23.7 Consent of Steven L. Ditman.*
23.8 Consent of Martin E. Franklin.*
23.9 Consent of Allan L.M. Barker.*
23.10 Consent of John F. Croweak.*
</TABLE>
- ----------
+ Management or compensatory plan.
* Filed with the Registration Statement on Form S-4 filed with the
Commission on May 14, 1999.
** Filed herewith.
*** To be filed by amendment.
<PAGE>
KANE KESSLER, P.C.
1350 Avenue of the Americas
26th Floor
New York, New York 10019
June 23, 1999
Saratoga Resources, Inc.
301 Congress Avenue
Suite 1550
Austin, Texas 78701
Re: Saratoga Resources, Inc..
Registration Statement on Form S-4 (File No. 333-78501)
Ladies and Gentlemen:
We have acted as special counsel to Saratoga Resources, Inc.,
a Delaware corporation ("Saratoga"), in connection with the preparation of the
Registration Statement on Form S-4, as amended (the "Registration Statement"),
being filed by Saratoga on or about the date hereof with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
ammended (the "Act"), with respect to up to 8,800,000 shares of common stock,
par value $0.001 per share, of Saratoga ("Common Stock"), to be registered with
the Commission pursuant to the Act. The Commonm Stock is being registered in
connection with (i) the merger (the "Prime Merger") of Prime Shellco Merger
Corporation, a newly-formed and wholly-owned subsidiary of Saratoga with and
into PrimeVision Health, Inc. and (ii) the merger (the "OptiCare Merger") of
OptiCare Shellco Merger Corporation, a newly-formed and wholly-owned subsidiary
of Saratoga, with and into OptiCare Eye Health Centers, Inc., pursuant to the
terms of an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
April 12, 1999, among Saratoga, PrimeVision Health, Inc., OptiCare Eye Health
Centers, Inc., Prime Shellco Merger Corporation and OptiCare Shellco Merger
Corportation. The Common Stock is described in the Proxy Statement/Prospectus
(the "Prospectus")
<PAGE>
included in the Registration Statement to which this opinion is an exhibit.
In connection therwith, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for purposes of this opinion. We have relied as to factual matters
on certificates or other documents furnished by Saratoga or its officers and
by government authorities. We have assumed the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as copies.
Based on the foregoing, we are of the opinion that the shares of
Common Stock to which the Registration Statement relates, when issued as
described in the Prospectus, will be duly authorized, validly issued, fully
paid and nonassessable.
The opinion set forth herein is subject to the following additional
qualifications and assumptions:
(a) Saratoga's stockholders shall have approved an amendment to
the Certificate of Incorporation of Saratoga in the form
filed as Annex B to the Registration Statement (the "Amendment
to the Certificate") to effect a 1 for 0.06493 reverse stock
split of the issued and outstanding shares of Common Stock,
and the Amendment to the Certificate, shall have been duly
executed, acknowledged and filed with the Secretary of State
of the State of Delaware; and
(b) The Merger Agreement or certificates of merger shall have
been filed with Secretary of State of the State of Delaware in
connection with the Prime Merger and the Merger Agreement or
certificates of merger shall have been filed with the
Secretary of State of the State of Delaware and the Secretary
of State of the State of Connecticut in connection with the
OptiCare Merger in such form as is required by, and executed
and acknowledged in accordance with the relevant provisions of,
the General Corporation Law of the State of Delaware and the
Connecticut Business Corporation Act:
We are qualified to practice law in the State of New York and do
not purport to be experts on, or to express any opinion herein concerning any
law, other than the laws of the State of New York, the General Corporation Law
of the State of Delaware and the federal laws of the United States of America.
<PAGE>
We are aware that we are referred to under the heading "Legal
Matters" in the Prospectus and we hereby consent to the use of our name in the
Prospectus and the filing of this opinion as an exhibit to the related
Registration Statement.
Very truly yours,
KANE KESSLER, P.C.
<PAGE>
Exhibit 10-8
NORTH CAROLINA
NASH COUNTY
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is entered into this 9 day
of April, 1999, by, between and among D. Blair Harrold, O.D., Allan L. M.
Barker, O.D., and Optometric Eye Care Center, P.A. ("OECC, PA"), and
PrimeVision Health, Inc. ("Prime"), PrimeVision of North Carolina, Inc.,
Consolidated Eye Care, Inc. ("CEC"), Steven B. Waite, Bank Austria, AG,
successor by merger to Creditanstalt-Bankverein (the "Bank"), and Bank Austria
Creditanstalt Corporate Finance, Inc. ("Lender"). The above-identified parties
are at times referred to herein collectively as "Parties" and individually as a
"Party."
W I T N E S S E T H:
WHEREAS, the Parties have had, between and among themselves, a number
of business-related disputes; and
WHEREAS, the Parties have heretofore been parties to that certain
lawsuit currently pending in Nash County Superior Court (99-CVS-634) (the
"Court"); and
WHEREAS, the Parties have arrived at a mutually agreeable resolution
to their respective disputes.
NOW THEREFORE, in consideration of the promises and representations
provided for herein, the receipt, sufficiency, and acceptance of which are
hereby acknowledged, the Parties agree as follows:
<PAGE>
1. Upon signing this Agreement, Drs. Harrold and Barker will move the
Court to dismiss without prejudice that certain action between and among the
parties currently pending in Nash County Superior Court (99-CVS-634), including
the Temporary Restraining Order associated with that action ("TRO"). Upon the
filing of such motion for dismissal, without further action on the part of any
Party: (A) that certain letter dated April 1, 1999, purporting to terminate the
Administrative Services Agreement ("ASA") by and between CEC and OECC, PA,
shall be deemed rescinded; (b) Drs. Harrold and Barker shall be deemed to have
rescinded their resignations from Prime, and Prime agrees to restore Drs.
Harrold and Barker to their former positions as Directors of Prime; (c) Drs.
Harrold and Barker shall be deemed to have rescinded their respective
resignations from CEC dated March 30, 1999, and shall be deemed restored to
their former status as Prime employees, with no resulting interruption or
alteration of compensation or benefits, except as specifically referenced
herein. Upon closing of the business combination between Prime and OptiCare Eye
Health Centers, Inc. ("OptiCare"), Drs. Harrold and Barker will move the Court
to dismiss the action referenced above with prejudice. All parties except Bank
and Lender will execute mutually acceptable releases. Bank and Lender will
release only Harrold and Barker.
2. Upon signing this Agreement, the Parties (other than the Bank and
Lender) will cause $1 million in cash to be deposited into an escrow account
agreeable to the Parties from funds previously transferred to the Nash County
Clerk of Superior Court. The Escrow Agreement governing the account ("Escrow
Agreement") will state that the funds will be released as follows to Drs.
Harrold and Barker:
-2-
<PAGE>
(a) $250,000 when any and all investigations of Prime
and its affiliates arising out of that certain
Request for Declaratory Ruling From the North
Carolina State Board of Examiners in Optometry (the
"Request for Declaratory Ruling") have been
concluded on terms and conditions reasonably
satisfactory to the Lender;
(b) $250,000 when OECC, PA and CEC execute a new
Administrative Services Agreement in accordance with
Section 8 hereof;
(c) $500,000 upon the closing of the business
combination between Prime and OptiCare or the
failure of such combination to close by September
30,1999, whichever shall first occur;
The Escrow Agreement will state that the funds will be released to Prime as
follows:
(i) the $250,000 referenced in subparagraph
(a) above if the investigation of Prime and its
affiliates arising out of the Request for
Declaratory Ruling has been concluded on terms that
the Lender has reasonably determined are not
satisfactory to it; or
(ii) any funds remaining in escrow if
Barker, Harrold or OECC, PA (collectively, the "OECC
Parties") breach the terms of this Agreement.
In the event that the funds are released to Drs. Harrold and Barker due to
2(a), (b) and (c) above, such payments, together with, the $250,000 paid to
Drs. Harrold and Barker out of the funds on deposit with the Nash County Clerk
will represent an advance payment against the next $1.25 million due and
payable under the currently effective employment agreements between Prime
-3-
<PAGE>
and Dr. Harrold, and Prime and Dr. Barker, each dated July 1, 1996. In the
event that Prime or Lender determine that the OECC Parties have breached this
Agreement, they shall notify the OECC Parties and the escrow agent under the
Escrow Agreement (the "Escrow Agent") of such default, specifying the nature of
such default. Unless one or more of the OECC Parties notify Prime, the Lender
and the Escrow Agent within seven days of their receipt of such notice, that
such OECC Party disputes the existence of such default, the Escrow Agent shall
disburse the funds to the Lender for application to the term loan of Prime
owing to the Lender. If one or more of the OECC Parties notify Prime, the
Lender and the Escrow Agent within such time period that such OECC Party
disputes the existence of such default, the funds shall be retained by the
Escrow Agent and disbursed in accordance with the dispute resolution provisions
of the Escrow Agreement.
3. Upon the closing of the business combination between Prime and
OptiCare, Prime will pay to Drs. Harrold and Barker another $1.25 million in
cash in the aggregate. OptiCare has represented and the Bank shall request that
OptiCare sign a letter in the form attached as Exhibit A which is incorporated
by reference.
4. By no later than May 6, 1999, Prime and Drs. Harrold and Barker
will execute a Share Grant Agreement under which they will be issued common
stock in Prime at closing of the business combination with OptiCare to produce
a share position on a primary basis of 32% of Prime before and subject to the
closing of the business combination with OptiCare. Such Share Grant Agreement,
and the shares of stock issued thereunder, are granted to Barker and Harrold in
satisfaction of all claims of the OECC Parties arising under or in respect of
(a) that certain promissory note in the original principal amount of $364,896
dated August 1, 1994 executed by
-4-
<PAGE>
CEC in favor of OECC, PA (the "OECC Note") and (b) the $482,193 by the OECC
Parties held by CEC on July 3, 1996 and alleged by the OECC Parties to belong
to OECC, PA (the "1996 Cash"). Upon the execution of the Share Grant Agreement
the OECC Parties shall suspend all efforts to make claims under or in respect
of the OECC Note and/or the 1996 Cash and upon consummation of the business
combination with OptiCare, the OECC Note shall be deemed cancelled and all
rights of the OECC Parties to the 1996 Cash shall terminate. To the extent the
business combination with OptiCare is abandoned after the issuance of the
additional shares under the Share Grant Agreement, the issuance of such shares
shall be rescinded, such shares shall be returned to Prime for cancellation or
other appropriate action, and the OECC Parties shall be free to pursue any and
all such claims against the OECC Note and the 1996 Cash.
5. By no later than May 6, 1999, Drs. Harrold and Barker will each
sign an Employment Agreement with OptiCare to be effective at the closing of
the business combination between Prime and OptiCare, which Employment
Agreements will replace and supersede the current Employment Agreements, and
will have the terms summarized below.
(a) Term of 7 years from execution;
(b) Base salary of $150,000 per year;
(c) Other features (including bonus rights,
non-competition, etc.) identical to the Employment
Agreement between OptiCare and Steven L. Ditman,
dated January 1, 1999, except as provided in 5(d) or
(e) below;
(d) In the event that either Drs. Harrold or Barker or
both are involuntarily terminated without cause or
via a change of control or non-renewal of their
respective Employment Agreements (but explicitly not
in the event of a
-5-
<PAGE>
voluntary termination or a termination for cause or
a voluntary termination upon a change of control),
the non-competition feature of their Employment
Agreements will permit Drs. Harrold and Barker
following such termination to engage in the practice
of optometry in Nash County, North Carolina and
contiguous counties.
(e) In the event that either Drs. Harrold or Barker are
terminated without cause (but explicitly not in the
event of a voluntary termination or a termination
for cause), the base salary for the remaining
balance of the 7 year term of his employment
agreement shall be paid in cash promptly in a lump
sum settlement. In the event that either Dr. Harrold
or Dr. Barker voluntarily terminates his employment
as a result of a change of control of OptiCare, such
terminating person shall be entitled to receive a
lump sum payment in cash equal to one year's base
salary.
6. In the event of an OptiCare liquidation (narrowly defined to mean
insolvency or bankruptcy) and the failure of OptiCare to meet its obligations
under the Employment Agreements due only to financial hardship (and
specifically not due to a dispute between the Parties), Drs. Harrold and Barker
will have the right to:
(a) Purchase the retail business operations referenced
below from OptiCare for cash consideration of 3
times the immediately preceding 12 months earnings
before interest, taxes, depreciation and
amortization excluding the effect of all
extraordinary items and non-recurring charges
(EBITDA) from said retail business operations and
the affiliated practices:
-6-
<PAGE>
o 3 presently in Rocky Mount (Golden East,
Tarrytown, Sunset);
o 1 presently in Roanoke Rapids;
o 1 presently in Wilson;
o 1 presently in New Bern
Said right shall be more fully evidenced in a document executed by the
appropriate Parties on or before May 6, 1999. Prime agrees that proceeds from
such sale shall be applied to the permanent reduction of the indebtedness owed
to Lender.
(b) Such right shall be available to Drs. Harrold and
Barker, until such time as (i) the aggregate market
value (calculated on the basis of the publicly
quoted closing price, as published in The Wall
Street Journal) of their stock in OptiCare (or in
any company of which OptiCare is a subsidiary)
exceeds $7,000,000 and (ii) shares of their stock in
OptiCare (or in any company of which OptiCare is a
subsidiary) are first eligible to be sold in market
transactions, regardless of whether all of their
shares may then be sold in such transactions.
7. Prime will cause the Merger Agreement with OptiCare to provide that
one Board seat on the OptiCare Board of Directors (post closing of the business
combination with Prime) will be offered to either Dr.
Harrold or Dr. Barker, as they may determine.
8. Prime, CEC, OECC, and Drs. Harrold and Barker agree that Prime
shall engage Smith Helms Mulliss & Moore LLP to prepare a new Administrative
Services Agreement between CEC and OECC, PA which is consistent with the rules
and regulations of the North Carolina State Board of Examiners in Optometry
(the "Optometry Board") and is economically
-7-
<PAGE>
similar to the method by which OptiCare contracts with OptiCare, P.C. Such
Administrative Services Agreement shall have a term of thirty (30) years;
provided, however, that such Administrative Services Agreement shall
automatically become terminable on thirty (30) days notice if the business
combination with OptiCare (a) is abandoned or (b) is not closed by September
30, 1999. The Parties agree to execute such Administrative Services Agreement
no later than April 28, 1999. Upon the request of Drs. Barker and Harrold,
Prime will cause additional officers of CEC to be elected and authorized to
execute and deliver such Administrative Services Agreement and will designate a
Doctor of Optometry licensed in North Carolina to be elected as an officer of
OECC, PA to be given the authority to execute and deliver such Administrative
Services Agreement.
9. By no later than May 6, 1999, Prime and Drs. Harrold and Barker
agree to execute a Succession Agreement which would take effect at closing of
the business combination between Prime and OptiCare, whereby ownership of the
OECC, PA can be passed to another Doctor of Optometry licensed in North
Carolina or, to the extent permitted by North Carolina law, a Doctor of
Medicine licensed in North Carolina, acceptable to the post-closing company, at
the discretion of OptiCare. Such Succession Agreement will be a closing
condition of the Merger Agreement between Prime and OptiCare.
10. By no later than May 6, 1999, Drs. Harrold and Barker and CEC will
transfer all OECC, PA retail location leases to CEC, which transfers shall take
effect upon closing of the Merger Agreement between Prime and OptiCare. Such
Transfer Agreements will include elimination of Drs. Harrold and Barker as
guarantors on the applicable leases, or the commitment by OptiCare to use
reasonable efforts to remove Drs. Harrold and Barker as guarantors on such
-8-
<PAGE>
leases (which efforts shall include, if needed, the guaranty of OptiCare of
such leases) together with an indemnification of Drs. Harrold and Barker for
any amounts thereafter required to by paid by them under such guaranties.
11. Promptly upon signing of this Agreement, CEC will transfer such
interest as is currently held by CEC in the Kirkland Drive property to such
real estate partnership as is designated by Drs. Harrold and Barker.
12. Drs. Harrold and Barker will waive their dissenters= rights in
respect of and will vote their shares in Prime for, the merger between Prime
and OptiCare, subject to the percentage ownership of Prime in the combined
company at closing being within 1% of 48.755% of the total ownership calculated
on a primary basis.
13. (a) Upon execution of this Agreement, the Parties agree to
immediately resume a normal, good faith and financially appropriate working
relationship amongst each other. Without limiting the generality of the
foregoing, upon the execution of this Agreement that certain Sublease dated
March 30, 1999, by, between and among D. Blair Harrold, Allan L. M. Barker and
Consolidated Eye Care, Inc., shall be deemed rescinded and shall be void and of
no further effect.
(b) The Parties agree with Lender that (i) the monies,
released from the Nash County Superior Court Clerk, will be applied first to
the payment of $250,000 to Harrold and Barker, second to the extent of
$1,000,000, to the delivery into escrow of the amount required by Section 2
hereof, third, to the extent of $1,906,797.00, to the payment in full of all
past due amounts owed to Lender and legal fees associated herewith, fourth to
provide for the working capital and managed care needs of Prime and its
subsidiaries, as agreed to by Lender and Prime,
-9-
<PAGE>
and last to the prepayment of the Term Loan owed by Prime to Lender; (ii) all
cash received by OECC, PA between the date of the TRO and the date of this
Agreement shall be turned over to CEC and deposited in an account designated by
Prime; and (iii) all cash received by OECC, PA and CEC shall be deposited in
accounts satisfactory to Lender for which, commencing on April 15, 1999, the
sole signature rights will be held by David Durfee or Bruce Broadbelt or their
designees. Prime agrees to provide to Lender, as soon as available but not
later than April 30, 1999, a cash flow analysis satisfactory to Lender of the
working capital and managed care requirements of Prime and its subsidiaries for
the subsequent eight (8) weeks. All cash held by Prime, its subsidiaries or
OECC, PA in excess of the reasonable working capital requirements as set forth
in the cash flow analysis shall be paid to the Bank on May 6, 1999 and applied
to the principal installments of the Term Loan owing to Lender, in the inverse
order of maturity.
(c) CEC's lease payments shall after the execution of this
Agreement continue in the ordinary course of business in accordance with the
terms of applicable leases, on the same basis as the previous three years.
14. If the various agreements referenced in Sections 4, 5, 8, 9, and
10 above are not signed by May 6, 1999, the Parties shall be free to pursue any
and all legal remedies and actions which they may have.
15. The Parties do hereby represent to each other that each has full
power and legal authority to execute and perform this Agreement and that each
has not assigned, transferred, or conveyed to any person or entity nor pledged,
encumbered, or granted any form of security interest in or to any of the
claims, rights, actions or causes of action addressed in this Agreement.
-10-
<PAGE>
16. The Parties acknowledge and agree that this settlement is in
compromise of disputed claims and that nothing herein shall be construed as an
admission of liability on the part of any Party and that said Parties deny any
and all liability and intend merely to avoid litigation and buy their peace.
17. The Parties agree that they will not provide a copy of this
Agreement to anyone, introduce or attempt to introduce this Agreement in any
proceeding, or disclose the terms of this Agreement in any other manner to
anyone, except that: (i) the Parties may, subject to the applicable rules of
procedure and evidence, introduce this Agreement in an action or other
proceeding for violation of this Agreement; (ii) the Parties may, as reasonably
necessary for the conduct of their business affairs, disclose this Agreement
and its terms to their accountants, attorneys and regulators and (iii) the
Parties may disclose this Agreement and its terms to the extent required by
law. The Parties further agree that they shall not disparage each other.
18. The Parties acknowledge and agree that, except for certain
inducements given to the Bank and the Lender by Prime and by Marlin Capital,
L.P., no promise, inducement, agreement, or factual or legal representation not
contained in this Agreement has been made to them and that this Agreement and
the Escrow Agreement contain the entire agreement among them regarding the
subject matter hereof. The Parties further acknowledge and agree that the terms
of this Agreement are contractual and not a mere recital.
19. The Parties represent and acknowledge that each of them has read
and understands the whole of this Agreement. The Parties further acknowledge
that each of them has had available legal counsel for any consultation that
they may have desired concerning the terms of this Agreement or the meaning
thereof before the execution of this Agreement.
-11-
<PAGE>
20. With the exception of Bank and the Lender, whose attorneys= fees
are reimbursed by Prime, the Parties shall bear their own attorney's fees and
costs, including but not limited to those incurred in the Nash County action
(99-CVS-634) referenced above.
21. This Agreement may not be altered or amended except by a writing
signed by all the Parties.
22. The Parties agree that in the event any portion of this Agreement
is held to be void or unenforceable, the remaining portions shall remain in
full force and effect.
23. This Agreement is deemed executed in and shall be construed under
the laws of the State of North Carolina. The Superior Court of Nash County,
North Carolina shall be the exclusive venue of any litigation brought for
enforcement or violation of this Agreement.
24. This Agreement may be executed in several counterparts each of
which shall be considered an original.
25. Nothing contained in this Agreement, the Escrow Agreement or any
other instrument, document and agreement executed pursuant hereto or thereto or
in connection herewith or therewith shall be deemed or construed to limit or
impair any rights the Lender has under that certain Amended and Restated Loan
and Security Agreement, dated as of May 30, 1997, as amended (the "Loan
Agreement"), or under any of the "Loan Documents," as such term is defined in
the Loan Agreement, including, but not limited to, the "Master Guaranty" or
"Master Security Agreement," as such terms are defined in the Loan Agreement.
OECC, PA and Drs. Barker and Harrold, in consideration of the amounts received
hereunder, agree that they shall not challenge, contest or dispute (a) the
validity or enforceability of OECC, PA's
-12-
<PAGE>
obligations under the Master Guaranty and the Master Security Agreement, or (b)
the validity, perfection or first priority status of the liens in the assets of
OECC, PA in favor of the Lender.
26. The Parties hereby agree that their intent is that all agreements,
policies and procedures comply with applicable law, including, but not limited
to, the rules and regulations of the Optometry Board. The Parties agree to
undertake a review of the policies and procedures between CEC and OECC, PA and
will undertake to correct any deficiencies found therein and to demonstrate, in
connection with any investigation undertaken by the Optometry Board, that the
Parties are in compliance with applicable law.
IN WITNESS WHEREOF, the Parties have executed this Agreement, or have
caused their duly authorized representatives to execute this Agreement,
effective as of the date first written above.
[Signatures follow on next page.]
-13-
<PAGE>
PRIMEVISION HEALTH, INC.,
a Delaware corporation
By: /s/ Gregg Luchs
----------------------------------
Gregg Luchs, Ass't Secretary
PRIMEVISION OF NORTH CAROLINA, INC.,
a North Carolina corporation
By: /s/ Gregg Luchs
----------------------------------
Gregg Luchs, Ass't Secretary
CONSOLIDATED EYE CARE, INC., a
North Carolina corporation
By: /s/ David A. Durfee
----------------------------------
David A. Durfee, President
AGREED:
SMITH HELMS MULLISS & MOORE, L.L.P.
By: /s/ James L. Gale
----------------------------
James L. Gale
2 Hannover Square, Suite 2800
Raleigh, NC 27601
Telephone: (919) 755-8700
Attorneys for Prime Vision Health, Inc.,
PrimeVision of North Carolina, Inc., and
Consolidated Eye Care, Inc.
-14-
<PAGE>
ATTORNEY DULY AUTHORIZED:
/s/ Mark L. Bibbs
/s/ Steven B. Waite
---------------------------------(SEAL)
Steven B. Waite
AGREED:
FITCH & ASSOCIATES
By: /S/ Mark L. Bibbs
-----------------------------
Mark L. Bibbs
615 East Nash Street
Wilson, NC 27893
Telephone: (252) 291-6500
Attorneys for Defendant Steven B. Waite
BANK AUSTRIA, AG, successor by merger to
CREDITANSTALT-BANKVEREIN, an
Austrian banking corporation
By: /s/ Scott Kray
----------------------------------
Scott Kray, Vice President
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC., a
Delaware corporation
By: /s/ Gary Andresen
----------------------------------
Gary Andresen, Associate
AGREED:
POYNER & SPRUILL, L.L.P.
By: /s/ John R. Jolly
------------------------------
John R. Jolly
3600 Glenwood Avenue
Raleigh, NC 27612
Telephone: (919) 783-6400
Attorneys for Bank Austria, AG, successor by merger
to Creditanstalt-Bankverein, and Bank Austria
Creditanstalt Corporate Finance, Inc.
-15-
<PAGE>
ATTORNEY DULY AUTHORIZED:
/s/ D. Royce Powell
/s/ D. Blair Harrold
----------------------------(SEAL)
D. Blair Harrold
ATTORNEY DULY AUTHORIZED:
/s/ D. Royce Powell
/s/ Allan L. M. Barker
----------------------------(SEAL)
Allan L. M. Barker
OPTOMETRIC EYE CARE CENTER, P.A.,
a North Carolina corporation
ATTORNEY DULY AUTHORIZED:
/s/ D. Royce Powell
By: /s/ D. Blair Harrold
-------------------------------
D. Blair Harrold, President
AGREED:
/s/ Nigle B. Barrow, Jr.
- ------------------------------
Nigle B. Barrow, Jr.
150 Fayetteville Street Mall
Suite 1700
Raleigh, NC 27601
Telephone: (919) 834-2116
Attorneys for D. Blair Harrold, O.D.,
Allan L. M. Barker, O.D., and Optometric Eye Care Center, P.A.
MAUPIN TAYLOR & ELLIS, P.A.
By: /s/ D. Royce Powell
--------------------------
D. Royce Powell
By: /s/ James E. Gates
---------------------------
James E. Gates
3200 Beechleaf Court, Suite 500
Raleigh, NC 27604
Telephone: (919) 981-4000
Attorneys for D. Blair Harrold, O.D.,
Allan L. M. Barker, O.D., and Optometric Eye Care Center, P.A.
-16-
<PAGE>
BLUE CROSS & BLUE SHIELD OF CONNECTICUT, INC.
VISION CARE CAPITATION AGREEMENT
THIS AGREEMENT is made and entered into between BLUE CROSS & BLUE
SHIELD OF CONNECTICUT, INC. ("BC&BS") for itself and as agent for each of its
Affiliates (defined below) and OPTICARE EYE HEALTH CENTERS, INC., (the "Group")
as of the Effective Date (defined herein).
PURPOSE
BC&BS contracts for itself and on behalf of its Affiliates with
employers, labor unions, trusts, administrators and other entities and
individuals to insure, administer, arrange or deliver health services for
Members (defined below); and
WHEREAS, BC&BS and the Group desire to enter into this Agreement
relating to the delivery of and compensation for Covered Services (defined
below).
In consideration of the mutual promises herein, the parties agree as
follows:
I. DEFINITIONS
Defined terms are stated below and in the Administrative Policies and
Procedures.
"Administrative Policies and Procedures" means the rules, policies and
procedures adopted by BC&BS that establish conditions relating to the delivery
of Covered Services as communicated to the Group from time to time.
"Affiliate" means any entity controlled directly or indirectly by BC&BS
and listed on Schedule A.
"BC&BS" means BC&BS on its own behalf and on behalf of its Affiliates,
which BC&BS represents as agent for purposes of this Agreement. Unless otherwise
stated or implied by the context, references to BC&BS shall be interpreted as
"BC&BS or an Affiliate."
"Covered Services" means (a) services of a Represented Provider or
where appropriate and consistent with his/her professional license, a
practitioner under the direct personal supervision of a Represented Provider,
and (b) laboratory tests and other diagnostic procedures performed by or under
the direction of a Represented Provider, that are provided to a BlueCare Family
Plan Member in accordance with this Agreement and are eligible for payment or
reimbursement under the applicable Plan.
<PAGE>
-2-
"Member" means any person who is eligible to receive Covered Services.
"Participating Provider" means a duly licensed provider including,
without limitation, a physician, a non-physician practitioner, a hospital, a
skilled nursing facility, a home health agency, a laboratory and a pharmacy,
that has, directly or indirectly, entered into a written agreement with BC&BS to
provide health services to Members.
"Payor" means a person or entity that is liable for funding payments
under a Plan.
"Plan" means any health plan that is sponsored, underwritten or
administered by BC&BS or by an entity with which BC&BS has agreed to provide
access to the network of Participating Providers, as any Plan may be amended
from time to time.
"Program" or "Product" means the health maintenance organization (HMO),
Preferred Provider Organization (PPO) or other types of health delivery models,
administrative services, Plan designs and product descriptions that are provided
or arranged by BC&BS and that are specifically described in the Administrative
Policies and Procedures.
"Represented Provider" means a licensed ophthalmologist, optometrist or
optician (a) who is employed by, associated with or otherwise represented by the
Group; (b) who is authorized by the Group to provide services pursuant to this
Agreement; (c) who has completed a HealthCare Professional Credentialing
Application; and (d) who has agreed with the Group to be subject to the
requirements of this Agreement to the extent applicable to the Represented
Provider.
"Utilization/Quality Management" means the processes, established by or
on behalf of a Payor, under which the access to, delivery, quality and
utilization of Covered Services are assessed and reviewed in terms of medical
necessity, efficiency, effectiveness, reasonableness of services and improved
health outcomes.
II. OBLIGATIONS OF THE PARTIES
A. Services
1. BC&BS, the Group and its Represented Providers shall act in
accordance with the terms of this Agreement. The Group agrees that payment in
full for his/her Covered Services shall be as set forth in Schedule B.
2. The Group, through its Represented Providers, shall provide Covered
Services in accordance with applicable laws and standards of care and skill
prevailing in the Group's practice
<PAGE>
-3-
community. They shall provide Covered Services at locations acceptable to BC&BS
and so as to provide convenient and timely service to Members. The Group may
discontinue any location(s) upon thirty (30) days' prior written notice to BC&BS
provided that convenient and timely service to Members is not interrupted. The
Group shall at all times maintain a sufficient number of Represented Providers
to provide convenient access for Members. BlueCare shall work in conjunction
with the Group in order to determine whether an adequate number of Represented
Providers are being maintained by the Group. However, final determination as to
whether there is an adequate number shall be made by BlueCare in its sole
discretion. To assure continuity of care for Members, the Group, through its
Represented Providers, shall provide necessary services to Members seven (7)
days per week, national holidays excepted, for all services covered under this
Agreement except for routine eye care- services.
3. The Group and its Represented Providers shall provide Covered
Services in the same manner and as promptly as services provided to other
patients. They shall not discriminate in the treatment of any Member on the
basis of race, color, national origin, religion, sex, marital status, health
status, sexual orientation, age or source of payment.
4. BC&BS shall, as applicable, conduct Utilization/Quality Management
and administer Covered Services without discriminating against a Member on the
basis of race, color, national origin, religion, sex, marital status, health
status, sexual orientation or age.
5. The Group shall require the Represented Provider who is a physician
to (i) maintain medical staff membership in good standing at one or more
hospitals that are a Participating Provider; and (ii) maintain clinical
privileges consistent with the practice of his/her specialty. The Group shall
require each Represented Provider to refer Members for health services other
than Covered Services to Participating Providers designated in the Plan or
Program except as otherwise described in the Administrative Policies and
Procedures or as otherwise required by law.
6. BC&BS shall identify Participating Providers to the Group, its
Represented Providers, Payors and Members in directories or other such formats
as BC&BS determines is reasonably appropriate.
7. The Group and its Represented Providers shall be bound by and comply
with the provisions of applicable state and federal laws, the Administrative
Policies and Procedures and Utilization/Quality Management.
8. BC&BS shall communicate the Administrative Policies and Procedures
to the Group, including up-to-date information concerning Programs, applicable
levels of benefits, and copayment, coinsurance and deductible amounts applicable
to each Member.
<PAGE>
-4-
9. BC&BS shall contract, directly or indirectly, with Payors who agree
to pay in accordance with this Agreement for Covered Services rendered by the
Group and its Represented Providers. Upon specific request by the Group, BC&BS
shall identify designated Payor responsible for payment of Covered Services to a
specific Member.
10. Upon written request by BC&BS, the Group shall prohibit a
Represented Provider from continuing to provide services to members under this
Agreement. The Group shall take action within thirty (30) days of its receipt of
BC&BS' request, unless BC&BS requests immediate action by the Group.
B. Compensation and Billing
1. BC&BS shall secure the agreements of Payors to compensate the Group
for Covered Services as described in Schedule B hereto, subject to the Member's
payment obligations under the applicable Plan or Program. The Group agrees to
accept the compensation described in this Agreement and Schedule B as payment in
full for Covered Services rendered by the Group and its Represented Providers.
2. The Group and its Represented Providers shall look solely to
designated Payor for compensation for Covered Services and under no
circumstances, included but not limited to non payment by Payor, BC&BS'
insolvency or breach of this Agreement shall they render a bill or charge to any
Member except (i) applicable copayments, deductibles and coinsurance; (ii) for
services that are not medically necessary or are otherwise not Covered Services,
provided that they obtain the consent of the Member before providing such
service; or (iii) for services provided after the individual ceases to be a
Member. This paragraph shall survive termination of this Agreement for any
reason and shall be construed to be for the benefit of Members.
3. The Group shall submit to BC&BS within twenty (20) days after the
end of each month during the term hereof, a monthly Covered Services tape
(itemized by Member) in the format specified by BC&BS detailing the number of
Covered Services performed for Members during such month; the date of services;
the appropriate CPT or HCPCS procedure code; the ICD-9-M code and description of
such Covered Services; the name and provider number of the Represented Provider;
the current published patient charge of the Group for such Covered Services; and
such other data and information as BC&BS may reasonably request. This tape shall
be furnished only for Covered Services provided to Members who are shown on the
membership file for such month submitted to the Group by BC&BS. All data
provided on this tape shall have an accuracy rate of 97%. If the Covered
Services tape is not received by BC&BS within thirty (30) days after the end of
the month, BC&BS shall have the right to retain fifteen (15%) of the next
payment to the Group until receipt of such tape.
<PAGE>
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4. When designated Payor is secondary under applicable nonduplication
of benefit rules, Payor will pay no greater amount than the amount owing for
Covered Services under this Agreement. If, with respect to any Member the Group
recovers any amount for Covered Services from a primary payor, then designated
Payor may deduct such amount from the amount due to the Group by Payor with
respect to any other Member. The Group agrees that it will not bill BC&BS as
secondary payor for any Covered Services for which BC&BS is the primary payor
provided, however, that this provision shall not be construed to reduce a
Member's benefits under any Plan.
C. Program Identification and Participation
1. BC&BS shall establish a system of Member identification to
communicate to the Group and its Represented Providers the Member's Program and
such other information as BC&BS deems appropriate.
2. BC&BS shall establish and maintain a system by which the Group may
obtain eligibility and general coverage information concerning Members.
3. BC&BS shall notify the Group either upon the execution of this
Agreement or at least thirty (30) days in advance of the commencement of the
Group's participation in a Program or Product in which the Group did not
previously participate pursuant to this Agreement. The Group and its Represented
Providers agree to participate in each Program or Product described in such
notice or notices.
D. Records and Recordkeeping
1. BC&BS and the Group agree that clinical records of Members shall be
regarded as confidential and both shall comply with all applicable federal and
state laws regarding such records.
2. The Group and its Represented Providers will maintain medical,
financial and administrative records concerning services provided to Members and
will keep these records for at least five (5) years from the date the service
was rendered. They agree that BC&BS or Payors, their authorized representatives,
and duly authorized third parties such as governmental or regulatory agencies,
will have the right to inspect, review and receive copies of records directly
related to services rendered to Members, upon reasonable notice, during regular
business hours. The Group or its Represented Providers will use its or their
best efforts to obtain any necessary releases from Members with respect to their
records and the information contained therein.
E. Notice of Changes
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-6-
The Group shall notify BC&BS in writing within seven (7) days after the
occurrence of:
(i) A change of the Group's business address or of any
Represented Provider's address, including any relocation or elimination
of a location described in Section II.A.2.;
(ii) Any action taken to restrict, suspend or revoke the
Group's professional license or certificate or the license of any
Represented Provider;
(iii) Any action to restrict, suspend or revoke any
Represented Provider's staff privileges;
(iv) Any action brought against the Group or a Represented
Provider for malpractice and the final disposition of such action by
settlement or adjudication;
(v) The termination, reduction or cancellation of the
insurance coverages required under this Agreement;
(vi) Any criminal action against the Group or a
Represented Provider; or
(vii) Any other situation which might materially affect the
Group's or a Represented Provider's ability to carry out the duties
under this Agreement or to meet any credentialing criteria.
F. Utilization/Quality Management
1. The Group and its Represented Providers shall cooperate with BC&BS
in its conduct of Utilization/Quality Management including, without limitation,
Quality Management site visits. The Group agrees that payment for any claim may
be reduced or denied if BC&BS or its designee makes a Utilization/Quality
Management determination that health care services provided by the Group or a
Represented Provider were not Covered Services because they were not medically
necessary or were otherwise not eligible for payment under the applicable Plan.
The Group will be obligated to reimburse Payor either directly as specified by
BC&BS or through a retroactive adjustment against other payments due to the
Group if a claim was previously paid and is later determined not to be medically
necessary or to be otherwise ineligible for payment under the applicable Plan.
2. BC&BS shall maintain and communicate to the Group a procedure for
the appeal of Utilization/Quality Management decisions.
<PAGE>
-7-
3. In such circumstances that BC&BS deems appropriate, BC&BS agrees to
communicate to the Group Utilization/Quality Management information concerning
Covered Services rendered by Represented Providers.
G. Review and Audit
1. The Group and each Represented Provider agree that BC&BS may audit
their books and records related to Covered Services.
2. BC&BS shall provide reasonable advance notice of an audit. BC&BS
shall give due regard to the nature of the Group's or a Represented Provider's
business such that BC&BS does not unreasonably interfere with their professional
practice during an audit. The Group acknowledges that BC&BS is required by
Payors to verify that Covered Services are rendered and paid in accordance with
Program and Plan requirements and the Group and its Represented Providers agree
to cooperate with BC&BS in the audit.
3. The action that BC&BS may take as a result of an audit include, but
are not limited to: consultation with the Group, re-audit, withholding of
payments to the Group, demand for immediate payment of all sums determined to be
owed to it by the Group and the institution of action to collect such sums,
and/or suspension or termination of this Agreement. If BC&BS determines that it
has paid a claim to the Group which does not comply with this Agreement, BC&BS
may set off the amount of the claim from any future payment(s) that would
otherwise be due to the Group under this Agreement. If BC&BS determines that the
Group was underpaid under the terms of this Agreement, BC&BS shall notify Payor
to compensate the Group in accordance with BC&BS' findings.
H. Insurance
1. The Group shall obtain and maintain throughout the term of this
Agreement general and professional liability coverage in form and amount
acceptable to BC&BS and shall give BC&BS a certificate of insurance evidencing
such coverage upon request.
2. The Group shall require each Represented Provider to maintain such
coverages in form and amount acceptable to BC&BS and shall provide evidence of
such insurance to BC&BS upon its request.
I. Representations
1. The Provider Credentialing Applications submitted by or on behalf of
each Represented Provider are expressly incorporated by reference into this
Agreement. The Group and each Represented Provider represent and warrant that
the information set forth therein is true
<PAGE>
-8-
and correct. The Group shall promptly notify BC&BS of any changes in the
information contained in any Provider's Credentialing Application within thirty
(30) days of such change.
2. The Group represents and warrants that only Represented Providers
will be allowed to provide Covered Services.
3. The Group represents and warrants that it is authorized to act on
behalf of its Represented Providers and will provide evidence of its authority
upon request.
4. The Group will provide evidence of Represented Providers' agreement
to abide by the terms of this Agreement upon request.
5. The representations and warranties set forth herein shall continue
throughout the term of this Agreement.
III. TERM AND TERMINATION
A. Term of Agreement
This Agreement shall begin on September 1, 1995 (the "Effective
Date")and shall terminate as of September 1, 1997 unless sooner terminated as
provided under this Agreement. The term of the Agreement may be extended by the
Group until September 1, 1998 by providing written notice to BC&BS no later than
May 1, 1997 provided that at the time of such notice, the Group is not in breach
of its obligations under this Agreement by the Group,.
B. Termination
1. For Cause. This Agreement may be terminated for cause as
follows:
(a) Immediately upon written notice by a party, in the event
that another party becomes insolvent or is the subject of a voluntary
or involuntary bankruptcy or similar proceeding;
(b) Immediately if the Group is prohibited from participating
in the Medicare or Medicaid programs under Title XVIII or XIX of the
Social Security Act, either permanently or for a stated period of time;
(c) Immediately by BC&BS upon written notice in the event that
the Group or its Represented Providers have had its/his/her/their
licenses suspended or revoked, have had staff privileges restricted,
suspended or terminated (other than as a temporary
<PAGE>
-9-
administrative sanction), have had any policy of insurance required
under this Agreement terminated or cancelled or has committed fraud or
other claims abuses;
(d) By BC&BS upon thirty (30) days' prior written notice if it
determines that the Group or its Represented Providers have a pattern
and practice of inappropriate utilization or have materially violated
any of the Administrative Policies and Procedures or
Utilization/Quality Management; or
(e) By any party if the other party has breached any provision
of this Agreement and such breach has not been cured within thirty (30)
days after receipt of notice of the breach.
2. Without Cause. This Agreement may be terminated by any party without
cause upon one hundred twenty (120) days' prior written notice to the other
parties.
C. Rights and Obligation Upon Termination
1. Upon termination of this Agreement for any reason, the rights and
obligations of each party hereunder shall terminate, except as otherwise
provided in this Agreement or the Administrative Policies and Procedures. Any
such termination shall not relieve BC&BS or the Group from obligations arising
under this Agreement prior to the effective date of termination.
2. In the event of the dissolution or insolvency of an HMO Payor, the
Group and its Represented Providers agree to continue to provide Covered
Services to such HMO's Members until the Member becomes covered under another
health benefit plan or until the date for which premiums or other payments by or
on behalf of the Member have been made, whichever occurs first, at no charge to
the Member other than amounts payable by the Member under his/her HMO Plan. This
provision will survive the termination of this Agreement, regardless of the
reason for termination.
IV. MISCELLANEOUS PROVISIONS
A. Effect of Agreement
1. BC &BS is entering into this Agreement in its individual capacity
and as the duly authorized agent of each of its Affiliates. Each Affiliate,
however, is deemed to be a full party to this Agreement and will be solely
responsible for the performance of its obligations under this Agreement with
respect to its Members.
<PAGE>
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2. This Agreement contains all the terms and conditions agreed upon by
the parties to this Agreement and supercedes all other agreements of the
parties, oral or otherwise, regarding the provision of Covered Services.
3. The Group shall secure each Represented Provider's authorization for
any hospital at which he/she has staff privileges to provide BC&BS with
notification of any action taken against his/her staff privileges, any report
filed with the National Practitioner Data Bank with respect to him/her, any
professional negligence action brought against him/her or any other situation
which would materially affect a Represented Provider's ability to carry out
his/her duties and obligations under this Agreement.
B. Amendment
BC&BS and/or any Affiliate may amend this Agreement by providing prior
written notice to the Group. The Group may object in writing to any such
proposed amendment within thirty (30) days following receipt of notice; failure
to object shall constitute the Group's acceptance thereof.
C. Use of Name
The Group agrees that the Group's and each Represented Provider's name,
addresses and other relevant information may be included in literature
distributed to Members, Payors, Participating Providers, prospective Payors and
prospective Members.
D. Blue Cross and Blue Shield Association
The Group acknowledges that this Agreement constitutes a contract
between the Group and BC&BS or any Affiliate, that BC&BS is an independent
corporation operating under a license with the Blue Cross and Blue Shield
Association, an association of independent Blue Cross and Blue Shield Plans (the
"Association") permitting BC&BS to use the Blue Cross and/or Blue Shield Service
Mark in the State of Connecticut, and that BC&BS is not contracting as the
agent of the Association. The Group further acknowledges and agrees that it has
not entered into this Agreement based upon representations by any person, entity
or organization other than BC&BS and that no person, entity or organization
other than BC&BS will be held accountable or liable to the Group for any of
BC&BS' obligations to the Group created under this Agreement.
E. Independent Contractors
The relationship between the parties is that of independent
contractors. None of the provisions of this Agreement is intended to create, nor
will be construed to create, an agency, partnership or joint venture
relationship between the parties. No party to this Agreement nor any
<PAGE>
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of their respective officers, members or employees, will be deemed to be the
agent, employee or representative of another party by virtue of this Agreement.
F. Proprietary Information
The Group agrees that all proprietary information that the Group
receives from BC&BS, including but not limited to data, reimbursement methods
and rates, network information, trade secrets, programs, systems, work product
and other documentation, is the sole property of BC&BS. The Group further agrees
to keep this proprietary information strictly confidential, except as disclosure
to Represented Providers may be necessary in which event each such Represented
Provider shall keep such information strictly confidential.
G. Assignment and Delegation of Duties
Neither BC&BS nor the Group may assign duties, rights or interests
under this Agreement unless the other party so consents in writing provided,
however, that any reference to BC&BS herein shall include any successor in
interest and that BC&BS may assign its duties, rights and interests under this
Agreement in whole or in part to any Affiliate or may delegate any and all of
its duties in the ordinary course of business. The Group may delegate any or all
of its duties under this Agreement in the ordinary course of its business
provided that any such delegation shall require the prior consent of BC&BS
provided further, that such delegation shall not relieve the Group of any of its
obligations under this Agreement.
H. Notice
Any notice required to be given must be in writing and be sent via U.S.
mail or a recognized courier service or may be hand delivered to the Group at
the address described on the signature page of this Agreement and to BC&BS
and/or an Affiliate at the address listed below:
Blue Cross & Blue Shield of Connecticut, Inc.
Professional Relations Department
P.O. Box 558
370 Bassett Road
North Haven, Connecticut 06473
Any party may change its address for notice purposes by written notice
to the other party and such change will be effective upon receipt.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
<PAGE>
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<PAGE>
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THE GROUP BLUE CROSS & BLUE SHIELD OF
CONNECTICUT, INC. FOR ITSELF AND AS
AGENT FOR AFFILIATES
By: /s/ Dean Yimoyines By: /s/ Stephen B. Arthur
-------------------------------- -------------------------------
(signature of corporate officer)
Name: Dean Yimoyines Title: Vice President
-------------------------------- ----------------------------
(print name of corporate officer)
Title: President Date: 10-23-95
------------------------------- -----------------------------
Group Name: Opticare Eyeheath Centers, Inc.
-------------------------------
(print name of group)
Group/Corporate Tax
Identification No.:
---------------------------------
<PAGE>
ANTHEM BLUE CROSS AND BLUE SHIELD OF CONNECTICUT
EYE CARE SERVICES AGREEMENT
THIS AGREEMENT effective the 1st day of November, 1998 (the "Effective Date"),
by and between ANTHEM HEALTH PLANS, INC. doing business as Anthem Blue Cross and
Blue Shield of Connecticut ("Anthem BC&BS"), and OPTICARE EYE HEALTH CENTERS,
INC. ("CONTRACTING PROVIDER") located in Waterbury, Connecticut.
WHEREAS, Anthem BC&BS is in the business of providing prepaid healthcare
services to persons who wish to avail themselves of such services;
WHEREAS, Anthem BC&BS and CONTRACTING PROVIDER mutually desire that CONTRACTING
PROVIDER provide or arrange to provide quality eye care services to Members
(defined below) in a cost-effective manner in accordance with the terms and
conditions of this Agreement and applicable law; and
WHEREAS, Anthem BC&BS and CONTRACTING PROVIDER mutually desire to preserve and
enhance patient dignity.
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises
contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
For purposes of this Agreement and any attachment, exhibit or schedule attached
hereto, the following terms shall have the meanings set forth below:
1.1 ADMINISTRATIVE POLICIES AND PROCEDURES means the manual and materials
furnished by Anthem BC&BS during the term of this Agreement, as amended
and supplemented by Anthem BC&BS from time to time. Anthem BC&BS
retains the right to add to, delete from and otherwise modify the
Administrative Policies and Procedures from time to time. CONTRACTING
PROVIDER acknowledges that the Administrative Policies and Procedures
and other written materials provided by Anthem BC&BS are copyrighted.
1.2 AGREEMENT means this Eye Care Services Agreement.
1.3 COPAYMENT means a payment which may be collected directly by a
Participating Provider within the terms of this Agreement and the
Coverage Document. Such payment may be a fixed amount or a percentage
of applicable compensation for Covered Services rendered to a Member.
<PAGE>
1.4 COVERAGE DOCUMENT means a written document, and any amendments or
endorsements thereto, that describes the benefits, services,
exclusions, limitations and conditions that are available for or
applicable to coverage under the Plan.
1.5 COVERED SERVICES means those eye care services and supplies rendered by
or provided for by a Participating Provider licensed to practice
ophthalmology or optometry in the Service Area that are covered under
the applicable Coverage Document and are rendered to a Member. Covered
Services includes CONTRACTING PROVIDER'S duties and obligations set
forth in this Agreement.
1.6 CREDENTIALING means the process of collecting, verifying and evaluating
information in the Credentialing process. Credentialing will be
repeated on a periodic basis.
("ReCredentialing").
1.7 EMERGENCY SERVICES means covered, inpatient or outpatient, medical or
hospital services that are needed immediately because of sudden injury
or illness and cannot be delayed without risk of permanent damage to
the Member. Such services are considered Emergency Services as long as
transfer of the Member to a hospital which is a Participating Provider
or other designated alternative is precluded because of risk to the
Member's health or because transfer would be unreasonable given the
distance involved in the transfer and the nature of the medical
condition.
1.8 EXHIBIT means Exhibits A through C to this Agreement, incorporated
herein by reference as if set forth in full.
1.9 MEMBER means any person enrolled in a Plan who is eligible to receive
services covered under the applicable Coverage Document..
1.10 PARTICIPATING PROVIDER means any health care provider who or which
agrees to render or arrange for services or supplies for which benefits
are available under the applicable Coverage Document, to comply with
the requirements of such Plan and to accept negotiated or other binding
fees as payment in full for services rendered to Members and covered
under the applicable Coverage Document, and who is accepted by Anthem
BC&BS as a Participating Provider.
1.11 PAYOR means a person or entity which is liable for funding benefit
payments under a Plan, including, without limitation, Anthem BC&BS, an
employer, a labor union trust fund or another Blue Cross/Blue Shield
Plan.
1.12 PLAN means any program, product, or customer(s) that Anthem BC&BS at
any time has notified CONTRACTING PROVIDER as having access to the
network of REPRESENTED PROVIDERS pursuant to this Agreement, other than
the Anthem
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BC&BS products known as State Preferred, BlueCare Family Plan or the
Medicare Managed Care product pursuant to an agreement between Anthem
BC&BS and the Health Care Financing Administration.
1.13 Primary Care Physician means a Participating Provider in the specialty
of internal medicine, pediatrics, family medicine or general practice
to whom Members will have access without a referral. A Primary Care
Physician (a) provides initial and primary care services to Members,
(b) maintains the continuity of a Member's medical care and (c)
initiates and manages referrals to other Participating Providers as
required by the Plan.
1.14 Represented Provider means a licensed physician or other licensed
provider (a) that is associated with or otherwise represented by
CONTRACTING PROVIDER; (b) that is authorized by CONTRACTING PROVIDER to
provide services pursuant to this Agreement; (c) that has completed a
Credentialing Application, if required by Anthem BC&BS; (d) that has
agreed with CONTRACTING PROVIDER to be subject to the requirements of
this Agreement to the extent applicable to Represented Provider and (e)
that is accepted by Anthem BC&BS as a Participating Provider.
1.15 Service Area means the State.
1.16 State means the State of Connecticut.
1.17 Utilization/Quality Management Programs means the processes and
programs established by or on behalf of Anthem BC&BS as may be
evidenced by a written description pursuant to which the access to,
delivery, quality and utilization of health care services are assessed
and reviewed in terms of medical necessity, efficiency, effectiveness,
reasonableness of services, quality of services, and/or improved health
outcomes.
ARTICLE 2 - RELATIONSHIP OF THE PARTIES
2.1 Independent Contractor. CONTRACTING PROVIDER is an independent
contractor of Anthem BC&BS. Neither CONTRACTING PROVIDER or other agent
or representative of CONTRACTING PROVIDER shall be deemed or construed
to be an employee of Anthem BC&BS for any reason including, but not
limited to, the Federal Unemployment Tax Act, any workers' compensation
act and income tax withholding laws. CONTRACTING PROVIDER shall have
sole responsibility for the payment of all federal and state income
taxes applicable to its services and the services of CONTRACTING
PROVIDER and its other agents and representatives.
2.2 Patient Care. Participating Providers are responsible for patient care
decisions.
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2.3 Professional Judgment. CONTRACTING PROVIDER and Represented Providers
are not required to perform any procedure or treatment which it or they
deem professionally unacceptable.
2.4 Non-exclusive Agreement. CONTRACTING PROVIDER and Anthem BC&BS are not
precluded from entering into agreements similar to this with other
entities, persons or organizations.
2.5 Rights Reserved by Anthem BC&BS. Anthem BC&BS does not guarantee to
CONTRACTING PROVIDER any minimum number of Members. In addition,
CONTRACTING PROVIDER acknowledges that Anthem BC&BS does not warrant or
guarantee that CONTRACTING PROVIDER will be utilized by a Member or by
any number of Members, or that CONTRACTING PROVIDER's services will be
identified or made available as those of a Participating Provider for
any number, subset or group of Members.
ARTICLE 3 - CREDENTIALING AND RECREDENTIALING
3.1 Credentialing Requirements. In order to become a Represented Provider,
each provider may be required to submit to Anthem BC&BS a Credentialing
Application. The Provider Credentialing Applications submitted by or on
behalf of each Represented Provider are expressly incorporated by
reference into this Agreement. The CONTRACTING PROVIDER and each
Represented Provider represent and warrant that the information set
forth therein is true and correct. Anthem BC&BS's approval of a
Represented Provider's Credentialing application and its determination
of his/her/its compliance and CONTRACTING PROVIDER's compliance with
Anthem BC&B S's applicable standards, if any, as they may be amended by
Anthem BC&BS from time to time, are conditions precedent to this
Agreement. CONTRACTING PROVIDER shall be subject to, and CONTRACTING
PROVIDER shall cooperate with, ReCredentialing on a periodic basis.
Such processes include, but are not limited to, medical records audits,
office site surveys, patient satisfaction surveys and physician
practice profiling. Anthem BC&BS shall determine in its sole discretion
whether to approve Represented Provider's continued participation upon
ReCredentialing. Such approval may be conditioned upon compliance with
specific limitations or corrective actions.
Within thirty (30) business days of extending an offer to employ,
contract or associate with a provider, CONTRACTING PROVIDER shall
submit a Credentialing application to Anthem BC&BS consistent with this
Section 3.1 and this Agreement. In no event shall such provider provide
any Covered Services to Members, including coverage of CONTRACTING
PROVIDER, until such provider is credentialed and certified by Anthem
BC&BS, except as Anthem BC&BS may otherwise direct.
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CONTRACTING PROVIDER shall notify Anthem BC&BS in writing within ten
(10) days of any material change in the information set forth in any
Represented Provider's Credentialing application or ReCredentialing
application.
3.2 Licensing. CONTRACTING PROVIDER and Represented Providers must be duly
licensed under applicable State law to provide the health care services
that are the subject of this Agreement.
3.3 Additional Credentialing. Anthem BC&BS reserves the right to require
CONTRACTING PROVIDER to document additional credentials before Anthem
BC&BS will authorize CONTRACTING PROVIDER or its Represented Providers
to perform certain procedures which may be designated by Anthem BC&BS
as necessary or required.
3.4 Delegated Credentialing/ReCredentialing. Anthem BC&BS reserves the
right to require CONTRACTING PROVIDER to conduct Credentialing and/or
ReCredentialing upon ninety (90) days prior written notice to
CONTRACTING PROVIDER. CONTRACTING PROVIDER shall perform any such
Credentialing and ReCredentialing in compliance with Anthem BC&BS
requirements and otherwise in accordance with accreditation standards
related thereto of the National Committee for Quality Assurance
("NCQA").
3.5 NCQA Accreditation. CONTRACTING PROVIDER agrees that if, during the
term of this Agreement, NCQA develops criteria or standards for the
accreditation of eye care organizations, then CONTRACTING PROVIDER
shall use good faith efforts to obtain such accreditation. If
CONTRACTING PROVIDER fails to secure such NCQA accreditation, following
formal NCQA review, then Anthem BC&BS shall have the right to terminate
this Agreement pursuant to Section 8.4 (b) hereof.
ARTICLE 4 - SERVICES OF CONTRACTING PROVIDER
4.1 Health Services. CONTRACTING PROVIDER will provide through its
Represented Providers, or arrange to provide, Covered Services in
accordance with the applicable Coverage Document and Exhibit A -
Compensation Schedule. CONTRACTING PROVIDER agrees and shall require
Represented Providers to agree that health services provided to Members
shall be of a quality that is consistent with accepted standards of
quality medical services. CONTRACTING PROVIDER and Represented
Providers shall not discriminate in providing Covered Services to
Members either in the quality, quantity, or type of services rendered
or in any other manner, on the basis of race, color, sex, disability,
handicap, sexual orientation, age, religion, national origin, ancestry,
Vietnam-era veteran's status, place of residence, health status, need
for health services or source of payment for services rendered.
CONTRACTING PROVIDER and Represented Providers will observe, protect
and promote the rights of Members as patients.
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4.2 Network Management Services. Throughout the term of this Agreement,
CONTRACTING PROVIDER shall:
(a) Establish, maintain and administer a network of Represented
Providers in the State of Connecticut that are available to provide
Covered Services in accordance with this Agreement.
(b) Enter into Participating Provider agreements only with providers
that are accepted by Anthem BC&BS as Participating Providers.
CONTRACTING PROVIDER shall ensure that all Represented Providers are
contracted with CONTRACTING PROVIDER substantially in accordance with
the terms and conditions set forth in Exhibit B. CONTRACTING PROVIDER
shall not modify, amend or change any term or condition of the
Participating Provider agreements attached hereto as Exhibits B, nor
shall CONTRACTING PROVIDER modify, amend or change the standard form of
its contracts with Participating Providers from that of either Exhibit
B, without the prior written consent of Anthem BC&BS, which shall not
unreasonably be withheld. CONTRACTING PROVIDER will provide Anthem
BC&BS with thirty (30) days advance notice of any proposed change to
the Participating Provider Agreement and Anthem BC&BS shall respond. to
proposed changes within 30 days of receipt of said revisions.
CONTRACTING PROVIDER shall use its best efforts to ensure that
Represented Providers comply with the terms of their respective
agreements, which agreements are attached hereto as Exhibits B.
CONTRACTING PROVIDER shall keep the agreements between CONTRACTING
PROVIDER and represented Providers on file, and, upon request, shall
provide Anthem BC&BS with copies thereof. Anthem BC&BS shall have the
right to inspect and copy such agreements and all other records of
CONTRACTING PROVIDER relating to the CONTRACTING PROVIDER Network.
(c) Monitor Represented Providers for their continued compliance with
all applicable Credentialing/ReCredentialing criteria and with the
Utilization/Quality Management Programs.
(d) Maintain a sufficient number of Represented Providers to provide
(i) convenient access to Members, (ii) convenient hours of operation,
and (iii) convenient services. The determination of whether the
foregoing requirements are met shall be made by Anthem BC&BS, in its
reasonable business judgment. In the event Anthem BC&BS determines that
the CONTRACTING PROVIDER Network does not meet the standards
established by Anthem BC&BS from time to time, Anthem BC&BS shall
notify CONTRACTING PROVIDER of the specific aspects in which the
CONTRACTING PROVIDER Network fails to meet Anthem BC&BS's standards.
CONTRACTING PROVIDER shall have the right to bring the CONTRACTING
PROVIDER network into compliance with the standards set forth in Anthem
BC&BS's notice within sixty (60) days of CONTRACTING PROVIDER's receipt
of such notice. If not, Anthem BC&BS may, but shall not be obligated
to, enter into contracts with additional providers, or take such other
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<PAGE>
steps as it deems necessary or appropriate in its sole discretion to
cure the deficiencies described in its notice. Such additional
providers shall be considered to be Participating Providers for all
purposes of this Agreement.
(e) Require that all Represented Providers shall submit claims to
CONTRACTING PROVIDER in a timely fashion in evidence of services
rendered to Members. CONTRACTING PROVIDER shall require Represented
Providers to submit claims for payment of Covered Services either
electronically or in hard copy on HCFA red 1500 forms.
(f) Provide Anthem BC&BS with a listing of Represented Providers on the
Effective Date, and provide updates of changes, additions and deletions
to such listing as they occur. In addition, each month CONTRACTING
PROVIDER will provide full file refreshes of the listing of Represented
Providers in a format that is mutually acceptable to the parties.
(g) Maintain a toll-free telephone number to answer any appropriate
inquiries from Represented Providers and other Participating Providers.
(h) Communicate with Participating Providers concerning Member
complaints and other concerns identified by Anthem BC&BS. CONTRACTING
PROVIDER shall also notify any Represented Provider of his/her/its
termination as a Participating Provider by Anthem BC&BS.
Notwithstanding the foregoing, Anthem BC&BS retains the right to have
direct contact with Represented Providers concerning specified issues,
provided however, that Anthem BC&BS shall notify CONTRACTING PROVIDER
in advance of any contact by Anthem BC&BS with a Represented Provider
related to the quality of Covered Services rendered.
(i) Promptly notify Anthem BC&BS of the name of any Represented
Provider that is determined to have committed fraud or other claims
abuses.
(j) Require each Represented Provider to abide by each and every term
of this Agreement that is applicable to Represented Providers,
including without limitation, the terms and provisions herein relating
to holding Anthem BC&BS and Members harmless from financial liability.
4.3 Claims Submission and Payment. (a) Throughout the term of this
Agreement, CONTRACTING PROVIDER and Represented Providers shall submit
encounter information in accordance with this Agreement, the
Administrative Policies and Procedures or otherwise as reasonably
required by Anthem BC&BS and as agreed by CONTRACTING PROVIDER.
CONTRACTING PROVIDER shall pay all amounts due to Represented Providers
and other Participating Providers for Capitated Services to Risk
Population Members (defined in Exhibit A). Anthem BC&BS shall process
and shall
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require designated Payor to pay all amounts due to Represented
Providers for Covered Services to ASO Members (as defined in
Exhibit A).
(b) CONTRACTING PROVIDER agrees and shall require each Represented
Provider to agree that Anthem BC&BS may require CONTRACTING PROVIDER to
disallow any payment or set off the payment amount against any future
payments due such Represented Provider by Anthem BC&BS, a Payor or
CONTRACTING PROVIDER if: (i) the encounter or claim is for a service
which was not provided in accordance with this Agreement; (ii) the
payment exceeded the amount due pursuant to this Agreement; or (iii) if
the encounter or claim is not substantiated by the record-keeping
practices required pursuant to Section 4.5.
(c) CONTRACTING PROVIDER hereby agrees that in no event, including but
not limited to non-payment by Anthem BC&BS, or a designated Payor,
Anthem BC&BS's breach of this Agreement or Anthem BC&BS's insolvency,
or the insolvency of a designated Payor shall it bill, charge, collect
a deposit from, seek compensation, remuneration or reimbursement from,
or have any recourse against a Member or persons acting on behalf of a
Member (other than the designated Payor) for Covered Services provided
pursuant to this Agreement. CONTRACTING PROVIDER further agrees that:
(a) this provision shall survive the termination of this Agreement
regardless of the cause giving rise to termination and shall be
construed to be for the benefit of the Member; (b) this provision
supersedes any oral or written agreement now existing or hereafter
entered into between the CONTRACTING PROVIDER and a Member, or persons
acting on a Member's behalf; and (c) any amendments, modifications or
changes to this Section 4.3 shall be effective no earlier than thirty
(30) days after the Connecticut Department of Insurance has received
written notice of such proposed changes.
(d) CONTRACTING PROVIDER shall require each Represented Provider to
agree that in no event, including but not limited to non-payment by
CONTRACTING PROVIDER, CONTRACTING PROVIDER's breach of its agreement
with Represented Provider or CONTRACTING PROVIDER's insolvency, shall
Represented Provider bill, charge, collect a deposit from, seek
compensation, remuneration or reimbursement from, or have any recourse
against a Member or persons acting on behalf of a Member for Covered
Services rendered. CONTRACTING PROVIDER shall further require
Represented Provider's to agree that: (a) this requirement shall
survive the termination of this Agreement or the Represented Provider's
agreement with CONTRACTING PROVIDER regardless of the cause giving rise
to termination and shall be construed to be for the benefit of the
Member; (b) this requirement supersedes any oral or written agreement
now existing or hereafter entered into between the Represented Provider
and a Member, or persons acting on a Member's behalf; and (c) any
amendments, modifications or changes to this requirement shall not be
effective unless approved by Anthem BC&BS.
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(e) CONTRACTING PROVIDER shall require each Represented Provider to
agree to submit any claims or encounter information for Covered
Services within sixty (60) days from the end of the month in which
services are rendered. In no event, regardless of the cause or
circumstance, shall Anthem BC&BS or the Member be responsible for or
liable for any claim for Covered Services submitted more than one
hundred twenty (120) days after the date of CONTRACTING PROVIDER's or
Represented Provider's provision of the Covered Services.
(f) CONTRACTING PROVIDER and Represented Providers shall submit all
billings and/or encounters electronically in accordance with Anthem
BC&BS's billing policies and procedures and upon forms which may be
specified by Anthem BC&BS. CONTRACTING PROVIDER shall submit such
billing and/or encounter information to Anthem BC&BS no later that the
fifteenth (15th) day of the month following the month in which
CONTRACTING PROVIDER receives the billing and/or encounter information
from the provider. CONTRACTING PROVIDER agrees to use its best efforts
to correct instances where Anthem BC&BS's billing procedures are not
followed by CONTRACTING PROVIDER or REPRESENTED PROVIDER. If Anthem
BC&BS's billing procedures are not followed, if the billing form is not
acceptable to Anthem BC&BS, if the information required by Anthem BC&BS
from CONTRACTING PROVIDER and/or Represented Providers is not present
and the foregoing deficiencies materially prevent Anthem BC&BS from
effectively administering this Agreement or complying with the
regulatory requirements of any accrediting or governing body including,
but not limited to, the National Committee for Quality Assurance,
Health Plan Data and Information Set and National Measurement
Information Standards, as amended from time to time, Anthem BC&BS shall
not be obligated to make any payment until necessary corrections are
made by Contracting Provider, and neither CONTRACTING PROVIDER nor
Represented Provider shall bill or make any other attempt to collect
such amount from a Member.
Except as otherwise established herein, nothing in this Agreement shall
prohibit CONTRACTING PROVIDER from seeking from any person or entity
compensation, remuneration or reimbursement with respect to services
rendered by CONTRACTING PROVIDER to any individual who, as of the
date(s) of service, was not Member.
(g) CONTRACTING PROVIDER and Represented Providers shall not waive or
reduce, or advertise the waiver or reduction of, any Copayments.
(h) CONTRACTING PROVIDER agrees that in the event that CONTRACTING
PROVIDER is required to allocate its resources among its customers as a
result of a claims processing system failure or a lack of system
capacity, Anthem BC&BS shall be afforded the highest priority for the
processing of its business.
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4.4 CONTRACTING PROVIDER's Service Standards. Unless a higher standard is
set forth herein, CONTRACTING PROVIDER shall perform its duties
hereunder in accordance with applicable federal, state and local law.
4.5 Records. Record Keeping, Inspection and Audit. (a) CONTRACTING PROVIDER
and its Represented Providers and Anthem BC&BS agree to maintain
adequate financial, medical/clinical, administrative and other records
for the period and in the manner specified by applicable State and
federal law, and in accordance with any standards established by NCQA
or Anthem BC&BS. Anthem BC&BS, CONTRACTING PROVIDER and Represented
Providers shall respect the confidential information contained in these
records in accordance with applicable federal and state regulatory
requirements.
(b) CONTRACTING PROVIDER shall maintain, in accordance with generally
accepted accounting principles, adequate records to establish the
nature and number of claims paid and the nature and extent of services
rendered pursuant to this Agreement. These records shall remain
accessible to Anthem BC&BS for examination, audit and copying by Anthem
BC&BS throughout the calendar year in which they are established and
for seven (7) calendar years thereafter. Such audit may be conducted,
upon written notice, at reasonable intervals during the regular
business hours of CONTRACTING PROVIDER. CONTRACTING PROVIDER shall use
its best efforts to remedy any irregularity or deviation discovered by
Anthem BC&BS's audit or examination. CONTRACTING PROVIDER shall
maintain a disaster recovery plan, which shall include a plan for
electronic data backup, a copy of which disaster recovery plan shall be
provided to Anthem BC&BS.
(c) CONTRACTING PROVIDER shall provide to Anthem BC&BS, upon its
request, any and all reports, records, data, complaints, surveys,
studies, findings, analyses, methodologies and measurements related to
the conduct of the Utilization/Quality Management Program, including,
but not limited to, medical record reviews, committee minutes and Board
minutes.
(d) In addition to the foregoing audits, CONTRACTING PROVIDER and
Represented Providers shall permit Anthem BC&BS to conduct an onsite
inspection at each of their facilities at least annually. Such
inspection shall include the review of data, documents and records
related to the Utilization Management Program, to the Quality
Improvement Program and to eye care services under this Agreement.
CONTRACTING PROVIDER and Represented Providers shall use its and their
best efforts to respond to and remedy any irregularity or deviation
discovered by Anthem BC&BS during such inspection.
(e) Anthem BC&BS may take any action or actions as Anthem BC&BS, in its
reasonable discretion, determines is warranted by the results of any
audit, including but not limited to: consultation with CONTRACTING
PROVIDER; re-audit; the withholding of
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payment to CONTRACTING PROVIDER; demand for immediate payment of all
sums determined to be owed to it by CONTRACTING PROVIDER and the
institution of action to collect such sums; and/or the suspension or
termination of this Agreement. If Anthem BC&BS determines that it has
remitted a payment to CONTRACTING PROVIDER which does not comply with
this Agreement, Anthem BC&BS may, upon 30 days prior written notice to
CONTRACTING PROVIDER, setoff the amount of said payment from any future
payment(s) which would otherwise be due to CONTRACTING PROVIDER under
this Agreement.
4.6 Notice of Changes. CONTRACTING PROVIDER shall notify Anthem BC&BS in
writing as follows:
(a) Within five (5) business days after any action to restrict, suspend
or revoke any license, permit or approval required for CONTRACTING
PROVIDER to render Covered Services or of any action to restrict,
suspend or revoke any license, permit or approval required for any
Represented Provider to render Covered Services, of which CONTRACTING
PROVIDER has knowledge;
(b) Within five (5) business days after any action to restrict,
suspend, revoke or limit the medical staff privileges of any
Represented Provider, other than a suspension of less than thirty (30)
days for a medical records infraction or other administrative
deficiency, of which CONTRACTING PROVIDER has knowledge;
(c) Within thirty (30) days after any action is commenced against
CONTRACTING PROVIDER or, to the extent that CONTRACTING PROVIDER has
knowledge, against a Represented Provider, for professional or
vicarious liability and within thirty (30) days of the final
disposition of such action by settlement or adjudication;
(d) Within five (5) business days after the notice to CONTRACTING
PROVIDER of the termination, reduction or cancellation of any insurance
coverages required under this Agreement;
(e) Not less than thirty (30) days prior to any material changes in its
ownership, to the extent that the ownership or control of CONTRACTING
PROVIDER changes by 20% or more;
(f) Within five (5) business days after the initiation of any criminal
action against CONTRACTING PROVIDER or a Represented Provider;
(g) Within five (5) business days after the occurrence of any situation
which might materially affect CONTRACTING PROVIDER's or a Represented
Provider's ability to carry out the duties under this Agreement;
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(h) Not less than thirty (30) days in advance of CONTRACTING PROVIDER's
relocation of its facility or expansion to additional facilities and
not more than ten (10) days after such actual relocation or expansion;
(i) Within ten (10) days of any material change in the information set
forth in CONTRACTING PROVIDER's Credentialing or Re-Credentialing
information or in any Represented Provider's Credentialing application
or Re-Credentialing application; and
(j) Within ten (10) business days of any change in the insurance
coverages required under this Agreement of which CONTRACTING PROVIDER
has knowledge.
4.7 Reports and Reporting. (a) CONTRACTING PROVIDER shall issue to Anthem
BC&BS, at CONTRACTING PROVIDER's expense, such reports related to
CONTRACTING PROVIDER's and Represented Providers' services under this
Agreement, as Anthem BC&BS reasonably requests, including those reports
set forth on Exhibit C hereto. All reports shall be in a form and of
content and frequency as Anthem BC&BS and CONTRACTING PROVIDER shall
agree, but at a minimum shall meet any criteria that Anthem BC&BS
determines are applicable pursuant to HEDIS or other NCQA criteria or
NMIS.
(b) CONTRACTING PROVIDER agrees to furnish to Anthem BC&BS upon request
either (i) an audited balance sheet and related statements of income,
retained earnings and changes in consolidated financial position for
CONTRACTING PROVIDER as of the and for each fiscal year end during the
term of this Agreement, with an unqualified report thereon by
CONTRACTING PROVIDER's independent public accountants; or, if audited
sheets are not prepared, (ii) an unaudited balance sheet and related
statements of income, retained earnings and changes in financial
position for CONTRACTING PROVIDER as of and for the each fiscal year
end during the term of this Agreement, certified by the principal
financial officer of CONTRACTING PROVIDER. In addition, CONTRACTING
PROVIDER shall represent that, except as otherwise disclosed in writing
to Anthem BC&BS: (i) since the date of the financial statements (the
"Financial Statements"), there has been no material adverse change in
the financial condition, business, operations or properties of
CONTRACTING PROVIDER; (ii) all such Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied; (iii) the Financial Statements fairly present the
financial position of CONTRACTING PROVIDER as of the dates thereof and
the results of its operations and cash flows for the period ended on
the dates thereof; (iv) the Financial Statements reflect reserves
appropriate and adequate for all known material liabilities and
reasonably anticipated losses, as required by generally accepted
accounting principles; (v) since the date of the Financial Statement,
there has been no change in the assets, liabilities or financial
condition of CONTRACTING PROVIDER from that reflected therein except
for changes in the ordinary course of business consistent with past
practice and which have not been materially adverse; and (vi) none of
the business,
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prospects, financial condition, operations, property or affairs of
CONTRACTING PROVIDER has been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether
or not insured against.
4.8 Accessibility and Continuity of Care. CONTRACTING PROVIDER and
Represented Providers shall make all applicable Covered Services
available and accessible to Members twenty-four (24) hours per day,
seven (7) days per week, three hundred sixty-five (365) days per year
and in a manner that assures continuity of care. CONTRACTING PROVIDER
and Represented Providers shall provide Covered Services at locations
acceptable to Anthem BC&BS and so as to provide convenient and timely
service to Members. CONTRACTING PROVIDER may discontinue any
location(s) upon thirty (30) days' prior written notice to Anthem BC&BS
provided that convenient and timely service to Members is not
interrupted..
4.9 Liability Coverage. CONTRACTING PROVIDER and each Represented Provider
shall maintain general and professional liability coverage in a form
and amount acceptable to Anthem BC&BS. Such insurance shall cover
CONTRACTING PROVIDER and CONTRACTING PROVIDER's employees against any
claim or claims for damages arising by reason of personal injury or
death, occasioned, directly or indirectly, in connection with the
performance of any service by CONTRACTING PROVIDER under this
Agreement. CONTRACTING PROVIDER and each Represented Provider shall
give Anthem BC&BS a certificate(s) of insurance(s) evidencing such
coverage upon request. CONTRACTING PROVIDER shall notify Anthem BC&BS
in writing within five (5) business days of any change in such
liability insurance coverage.
4.10 Facilities and Staffing. CONTRACTING PROVIDER agrees that Covered
Services rendered by Represented Providers shall be provided in an
appropriate facility (if Covered Services are facility based), with
sufficient staff (all of whom shall be duly licensed or certified as
may be required under applicable law) to enable Represented Provider to
provide health care services generally recognized and accepted as being
within each Represented Provider's scope of services. Anthem BC&BS
reserves the right to verify the appropriateness of CONTRACTING
PROVIDER's facilities and staff. CONTRACTING PROVIDER hereby agrees to
provide access to Anthem BC&BS during normal business hours to perform
such verification.
4.11 Administrative Protocols. CONTRACTING PROVIDER and its Represented
Providers will comply with and abide by the reasonable Administrative
Policies and Procedures established by Anthem BC&BS for the delivery of
health services and for the utilization of and access to health care
services. These policies and procedures may be amended by Anthem BC&BS
and shall become effective upon notice to CONTRACTING PROVIDER.
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4.12 Grievance System. Anthem BC&BS will maintain and administer a grievance
system for Members. Complaints received by Anthem BC&BS concerning
services rendered by CONTRACTING PROVIDER or Represented Providers will
be resolved in accordance with the applicable grievance procedures.
CONTRACTING PROVIDER and Represented Providers agree to cooperate with
Anthem BC&BS in the resolution of Member complaints and to be bound by
such resolutions.
4.13 Blue Cross and Blue Shield Association. CONTRACTING PROVIDER
acknowledges its understanding that this Agreement constitutes a
contract between CONTRACTING PROVIDER and Anthem BC&BS and that Anthem
BC&BS is an independent corporation operating under a license with the
Blue Cross and Blue Shield Association, an association of independent
Blue Cross and Blue Shield Plans (the "Association"), permitting Anthem
BC&BS to use the Blue Cross and/or Blue Shield Service Mark in the
State, and that Anthem BC&BS is not contracting as the agent of the
Association. CONTRACTING PROVIDER further acknowledges and agrees that
it has not entered into this Agreement based upon representations by
any other person, entity, or organization other than Anthem BC&BS and
that no person, entity, or organization other than Anthem BC&BS will be
held accountable or liable to CONTRACTING PROVIDER for any obligations
created under this Agreement. This Section 4.13 will not create any
additional obligations whatsoever on the part-of Anthem BC&BS other
than those obligations created under other provisions of the Agreement.
4.14 Indemnification. The parties agree to indemnify and hold the other,
including their officers, directors, employees, representatives and
agents, harmless from and against any and all losses and damages
(including reasonable attorneys' fees) resulting from the alleged
neglect, breach of contract or other negligent act or omission of the
indemnifying party, its officers, directors, employees, representatives
or agents (but not medical staff members who are independent
contractors) under this Agreement. CONTRACTING PROVIDER shall indemnify
and hold Anthem BC&BS harmless from and against any and all claims by
Represented Providers for payment for Covered Services.
4.15 Program Participation. Anthem BC&BS shall notify CONTRACTING PROVIDER
at least thirty (30) days in advance of the commencement of CONTRACTING
PROVIDER's and Represented Providers' participation as Participating
Providers in a Plan in which they did not previously participate
pursuant to this Agreement. CONTRACTING PROVIDER agrees and shall
require Represented Providers to agree to participate, pursuant to the
terms of this Agreement, in each Plan described in such notice or
notices.
4.16 Continuation of Covered Services. In the event of dissolution or
insolvency of an HMO Payor, CONTRACTING PROVIDER and Represented
Providers agree to continue to provide Covered Services to such HMO's
Members until the Member becomes covered under another health benefit
plan or until the date for which premiums or other payments
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by or on behalf of the Member have been made, whichever occurs first,
at no charge to the Member other than Cost Shares. This provision will
survive the termination of this Agreement, regardless of the reason for
termination.
ARTICLE 5 - AUTHORIZATIONS AND REFERRALS
5.1 PRIOR AUTHORIZATION OF SERVICES. Unless otherwise delegated to
CONTRACTING PROVIDER subject to section 6.2 herein, CONTRACTING
PROVIDER and Represented Providers shall obtain prior authorization
from Anthem BC&BS before providing any Covered Services or referring a
Member for any Covered Services referenced in the Administrative
Policies and Procedures as requiring such prior authorization, except
in an Emergency.
5.2 COMPLIANCE WITH REFERRAL SYSTEM. CONTRACTING PROVIDER and Represented
Providers agree to comply with, if applicable, Anthem BC&BS's referral
policies and to furnish referral physicians and other Participating
Providers complete information on treatment procedures and diagnostic
tests performed.
5.3 REFERRALS TO SELECTED PARTICIPATING PROVIDERS. CONTRACTING PROVIDER
acknowledges that for selected health services, Anthem BC&BS may
designate an exclusive Participating Provider or a limited number of
Participating Providers to whom referrals or orders for that service
must be made, except in an Emergency.
5.4 RESTRICTIONS ON CERTAIN NON-COVERED SERVICES. In the event Anthem BC&BS
denies a request for coverage of investigational, experimental or other
specifically designated non-Covered Services, as identified in the
Administrative Policies and Procedures, CONTRACTING PROVIDER and its
Represented Providers shall, prior to ordering or providing such
non-Covered Services, inform the Member (a) that the services are not
Covered Services; (b) that Anthem BC&BS will not pay or be liable for
such services; and (c) that Member will be financially liable for such
services. In each such instance, CONTRACTING PROVIDER or Represented
Provider shall obtain a waiver and release from the Member acceptable
to Anthem BC&BS, but shall not be liable for denial of coverage.
5.5 ARRANGEMENT OF COVERED SERVICES. CONTRACTING PROVIDER and its
Represented Providers will provide those Covered Services only as
specifically authorized by a Member's Primary Care Physician through
Anthem BC&BS's referral system, when such referral is applicable.
5.6 AUTHORIZATION FOR REFERRAL. CONTRACTING PROVIDER and its Represented
Providers shall not provide non-Emergency Covered Services to any
Member referred to
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him/her unless such services are within the scope of the referral
authorization, when applicable.
ARTICLE 6- UTILIZATION/QUALITY MANAGEMENT PROGRAMS
6.1 COOPERATION. CONTRACTING PROVIDER and its Represented Provider's shall
cooperate with and abide by Anthem BC&BS's Utilization/Quality
Management Programs including, but not limited to, prescription drug
benefit management, laboratory service management, site surveys, case
management and discharge planning and utilization review procedures
(prospective, concurrent and retrospective). Anthem BC&BS will
cooperate with CONTRACTING PROVIDER in fulfilling the terms of this
Agreement.
6.2 DELEGATION. Anthem BC&BS reserves the right to require CONTRACTING
PROVIDER to conduct utilization management and quality assurance review
upon ninety (90) days prior written notice to CONTRACTING PROVIDER.
Such activities shall be conducted in compliance with Anthem BC&BS'
oversight and otherwise in accordance with NCQA accreditation standards
related thereto.
ARTICLE 7- COMPENSATION
7.1 COMPENSATION. As compensation in full for Covered Services, CONTRACTING
PROVIDER and Represented Providers agree to accept payment in
accordance with the terms set forth in the attached Exhibit A -
Compensation Schedule.
7.2 PERFORMANCE GUARANTEE. CONTRACTING PROVIDER agrees that if it fails or
refuses to provide to Anthem BC&BS any of the reports, data, surveys,
encounters, records, studies, findings, analyses, methodologies,
measurements or other information required under this Agreement or if
CONTRACTING PROVIDER fails to meet any performance standard required of
it under this Agreement, , excluding the Development of Quality
Standards, then Anthem BC&BS may withhold, for the period of
CONTRACTING PROVIDER's failure or refusal, up to fifty percent (50%) of
the compensation then due and payable to CONTRACTING PROVIDER, provided
that Anthem BC&BS shall notify CONTRACTING PROVIDER, prior to
withholding compensation, of the grounds for withholding the
compensation. Upon CONTRACTING PROVIDER's performance in accordance
with this Agreement or otherwise to Anthem BC&BS' reasonable
satisfaction, Anthem BC&BS shall pay to CONTRACTING PROVIDER the
withheld amount, without interest.
ARTICLE 8 - TERM, TERMINATION AND RENEWAL
8.1 TERM OF AGREEMENT. This Agreement shall commence on the Effective Date
and, subject to either party's right to terminate the Agreement
pursuant hereto, shall continue
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until midnight on December 31, 2000. Thereafter, Anthem BC&BS shall
have the option to renew the Agreement for additional one year period
which option Anthem BC&BS shall exercise by giving notice not less than
90 days prior to the end of each year.
8.2 TERMINATION WITHOUT CAUSE. Either party may terminate this Agreement
without cause by providing to the other party written notice of
termination one hundred twenty (120) days in advance of the intended
termination date.
8.3 TERMINATION BY ANTHEM BC&BS. Anthem BC&BS shall have the right to
terminate this Agreement upon thirty (30) days written notice to
CONTRACTING PROVIDER upon the occurrence of any of the following:
(a) Failure of CONTRACTING PROVIDER to comply with Anthem BC&BS's
Utilization/Quality Management Programs, or with Anthem BC&BS's
availability, staffing, or accessibility standards or financial
standards provided that Anthem BC&BS notifies CONTRACTING PROVIDER of
the deficiencies and, after the expiration of thirty (30) days from
such notice, Anthem BC&BS determines that CONTRACTING PROVIDER is
unable or unwilling to correct or has failed to show due diligence in
the correction of the deficiencies;
(b) Anthem BC&BS is unable to maintain agreements with hospitals,
physicians, and ancillary service providers who collectively constitute
a service delivery system.
8.4 TERMINATION BY ANTHEM BC&BS OR CONTRACTING PROVIDER. (a)
Notwithstanding any provision in this Agreement, if at any time there
shall be filed by or against a party to this Agreement, in any court,
tribunal, administrative agency or any other forum having jurisdiction,
pursuant to any applicable law, either of the United States or of any
state, a petition in bankruptcy or insolvency or for reorganization or
for the appointment of a receiver, trustee or conservator of all or a
portion of the party's property or if a party makes an assignment for
the benefit of creditors, and if this action is not dismissed after
ninety (90) calendar days, this Agreement may be immediately canceled
and terminated by the other party.
(b) Either party may terminate this Agreement by providing the other
party with not less than thirty (30) days' prior written notice in the
event the other party materially breaches any provision of this
Agreement. The notice must specify the nature of said material breach.
The breaching party shall have thirty (30) days from receipt of the
notice to correct the material breach. If the breaching party fails to
cure the material breach within the thirty (30) day period, the non
breaching party may terminate this Agreement, effective upon completion
of the thirty (30) day cure period.
In the event the material breach creates an emergency or a situation
whereby the nonbreaching party is in significant jeopardy as to its
ability to perform under this
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Agreement in the manner so intended by the parties to this Agreement,
then the nonbreaching party may give notice of such material breach to
the other party. If the breaching party fails to cure the material
breach within this two (2) business days, the non breaching party may
terminate this Agreement effective as of the third business day
following its notice, notwithstanding any other provision in this
Agreement.
8.5 TERMINATION OR SUSPENSION OF REPRESENTED PROVIDER.
(a) For Cause. Anthem BC&BS may require CONTRACTING PROVIDER to
terminate or suspend the participation of any Represented Provider for
cause, such termination or suspension to be effective immediately upon
notice to CONTRACTING PROVIDER, unless Anthem BC&BS specifies a later
date or unless otherwise provided by applicable law. Cause for
termination or suspension includes, but is not limited to, the
following:
(i) Anthem BC&BS determines that Represented Provider's
continuation as a Participating Provider poses risk of danger
to any Member;
(ii) Represented Provider materially breaches a term of this
Agreement applicable to such Represented Provider;
(iii) Represented Provider engages in any activity to disrupt
Anthem BC&BS's business;
(iv) Anthem BC&BS determines, in its discretion, that
Represented Provider does not qualify or meet applicable
standards for ReCredentialing;
(v) Anthem BC&BS determines that any of the information set
forth in Represented Provider's Credentialing or
ReCredentialing application is false or misleading;
(vi) Anthem BC&BS determines to terminate Represented Provider
in light of an amendment or change to a Credentialing or
ReCredentialing application revealing that there has been a
material change in Represented Provider's practice, licensure,
competence, affiliation or other similar matter;
(vii) Anthem BC&BS determines to terminate Represented
Provider for non-compliance with Anthem BC&BS
Utilization/Quality Management Programs and processes;
(viii) Represented Provider violates a Anthem BC&BS policy,
protocol or procedure or any applicable law or regulation;
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(ix) Represented Provider's agreement with CONTRACTING
PROVIDER terminates or is terminated;
(x) Represented Provider becomes bankrupt or insolvent;
(xi) Represented Provider commits any act, or fails to act,
and such commission or omission is grounds for suspension or
revocation of Represented Provider license, whether or not
such license is actually suspended or revoked; or
(xii) Represented Provider has any revocation by state or
federal authorities, or accreditation agency of any
certification or license required to fulfill this Agreement.
(b) Without Cause. Anthem BC&BS may terminate or suspend the
participation of any Represented Provider at any time without cause or
prejudice upon sixty (60) days' prior written notice to Represented
Provider.
8.6 EFFECT OF TERMINATION. In the event this Agreement is terminated,
regardless of the circumstances of termination, CONTRACTING PROVIDER
and its Represented Providers agree to serve Members through the last
day this Agreement is in effect. Notwithstanding the foregoing,
eligible Members who are patients of Represented Providers may, at
Anthem BC&BS's election, continue after termination of this Agreement
as patients until other arrangements can be made, not to exceed one
hundred twenty (120) days, or until the Plan terminates, whichever is
first. During such period, CONTRACTING PROVIDER shall be paid on a
fee-for-service basis at a rate that approximates the amount that
Medicare would pay plus 10% and shall cooperate with Anthem BC&BS's
policies and procedures in relation to those Members. CONTRACTING
PROVIDER shall cooperate with Anthem BC&BS in notifying Members of the
termination of this Agreement. Termination of this Agreement, except as
provided herein to the contrary, shall not affect the rights,
obligations and liabilities of the parties arising out of transactions
occurring prior to termination. CONTRACTING PROVIDER shall, upon
request of Anthem BC&BS, provide to Anthem BC&BS or such Participating
Provider as is designated by Anthem BC&BS, copies of Member medical
records and all records necessary for the settlement of outstanding
medical bills. Anthem BC&BS reserves the right to transfer, if feasible
and medically appropriate, those Members being treated by Represented
Provider to another Participating Provider once notice of the
termination of this Agreement is provided.
8.7 CESSATION OF ANTHEM BC&BS OPERATIONS. If Anthem BC&BS terminates its
operations, CONTRACTING PROVIDER and its Represented Providers agree to
provide Covered Services to Members until the last day of the month in
which Anthem BC&BS discontinues its operations.
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8.8 ADVERSE GOVERNMENTAL ACTION. In the event any action of any department,
branch, or bureau of the federal, state or local government materially
adversely affects either party's performance of obligations under this
Agreement, then that party shall notify the other of the nature of this
action, including in the notice a copy of the adverse action. The
parties shall meet within thirty (30) days and shall, in good faith,
attempt to negotiate a modification to this Agreement that minimizes
the adverse effect. Notwithstanding any other provision of this
Agreement, if the parties fail to reach a negotiated modification
concerning the adverse action, then the affected party may terminate
this Agreement by giving at least one hundred twenty (120) days notice
or may terminate sooner if agreed to by both parties.
8.9 REPRESENTED PROVIDER SUBSTITUTION INTO AGREEMENT. CONTRACTING PROVIDER
shall require that its Represented Providers agree to be bound, at
Anthem BC&BS's option, to the terms and conditions of this Agreement in
the event of dissolution or insolvency of CONTRACTING PROVIDER or in
the event of termination by Anthem BC&BS for breach as described in
this Article 8. Represented Providers' obligations under this provision
shall continue through the last day of the initial term of the
Agreement. In case of such dissolution, insolvency or termination,
Anthem BC&BS may, at its option, assume the administrative rights and
responsibilities of CONTRACTING PROVIDER described herein. This
Paragraph is intended to ensure continuity of care to Members in the
event of such dissolution, insolvency or termination.
ARTICLE 9 - APPEALS AND DISPUTE RESOLUTION
9.1 APPEALS. Except for decisions under Section 8.2 (Termination Without
Cause) and Section 8.5 (Termination or Suspension of Represented
Provider), if CONTRACTING PROVIDER or Represented Provider objects to a
decision by Anthem BC&BS under this Agreement, CONTRACTING PROVIDER may
appeal such decision by following the procedures established in this
Article 9. Such appeal must be submitted in writing within thirty (30)
days of the date of Anthem BC&B S's decision.
9.2 FEE DISPUTES AND CLAIM DENIALS. Appeals of fee disputes by CONTRACTING
PROVIDER shall be submitted in writing by CONTRACTING PROVIDER to
Anthem BC&BS which shall render a decision within ninety (90) days
after its receipt of the appeal. That decision shall be subject to the
dispute resolution provisions of this Article 9.
9.3 PROCEDURES APPLICABLE TO APPEALS. All appeals shall be considered
pursuant to such procedures as Anthem BC&BS, in its discretion, elects
to adopt. It is agreed that the availability of this appeal process
does not limit or expand any rights CONTRACTING PROVIDER may have, and
does not limit or expand the discretion of Anthem BC&BS as provided in
this Agreement, but shall serve as a procedural means to facilitate
internal review by Anthem BC&BS of disputes with CONTRACTING PROVIDER.
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9.4 DISPUTE RESOLUTION. In the event that any dispute relating to this
Agreement arises between Anthem BC&BS and CONTRACTING PROVIDER, which
dispute is not resolved pursuant to the appeal procedures provided in
Article 9, the dispute shall be resolved by binding arbitration in
accordance with the rules of the National Health Lawyers Association.
In no event may the arbitration be initiated more than one year after
the date one party gave written notice of the dispute to the other
party. The arbitrators shall have no power to ignore or vary the terms
of this Agreement and shall be bound by controlling law.
ARTICLE 10- RESPONSIBILITIES OF ANTHEM BC&BS
10.1 Anthem BC&BS shall provide, except as otherwise specified in this
Agreement, necessary and appropriate marketing, administrative, claims
processing, utilization and quality management, Member appeal and
reconsideration and underwriting functions that are required of a state
qualified Health Care Center.
10.2 Anthem BC&BS shall arrange for health care benefits for Members in
accordance with this Agreement.
10.3 Anthem BC&BS shall furnish CONTRACTING PROVIDER with membership
eligibility data on a monthly basis in a mutually acceptable format
which identifies those Members who are enrolled in Plans.
10.4 Anthem BC&BS shall have sole responsibility for the advertising and
marketing of all Anthem BC&BS Plans. CONTRACTING PROVIDER will not
advertise its participation in any Plan without the prior written
approval of Anthem BC&BS.
10.5 Anthem BC&BS shall monitor the quality of health care provided to
Members in accordance with all applicable legal requirements.
10.6 Anthem BC&BS shall compensate CONTRACTING PROVIDER and Represented
Providers in accordance with the terms set forth in the attached
Exhibit A - Compensation Schedule.
ARTICLE 11- MISCELLANEOUS
11.1 NOTICES. All notices provided for herein shall be in writing and shall
be deemed given when sent by (a) facsimile transmission using equipment
that provides automatic verification of transmission to the receiving
party's facsimile equipment; (b) Federal Express or other guaranteed
delivery service that provides the sender with a receipt upon delivery;
or (c) certified or registered mail, postage prepaid, return receipt
requested, to
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the parties hereto at the following addresses, or at such other
addresses as the parties hereto may designate in writing from time to
time.
To CONTRACTING PROVIDER:
OptiCare Eye Health Centers, Inc.
160 Robbins St.
Waterbury, CT 06708
Attn: Vice President of MSO Operations
To Anthem BC&BS:
Anthem Blue Cross and Blue Shield of Connecticut
370 Bassett Road
North Haven, CT 06473-4201
Attn: Vice President of Provider Relations and Contracts
11.2 ENTIRE AGREEMENT. This Agreement, together with any attachments,
schedules and exhibits attached to this Agreement or incorporated by
reference, contains all of the terms and conditions agreed upon by the
parties and supersedes all other agreements between the parties related
to the subject matter hereof.
11.3 IMPOSSIBILITY OF PERFORMANCE. No party hereto shall be deemed to be in
violation of this Agreement if such party is prevented from performing
any of its obligations hereunder for any reason beyond its control,
including without limitation, acts of God or of the public enemy,
flood, storm, strike, statute, regulation, rule or action of any
federal, state or local government.
11.4 ASSIGNMENT. No assignment, delegation or subcontract in whole or in
part, of all or any portion of this Agreement or any of the rights,
duties or obligations contained herein shall be made by either party
without the prior written consent not to be unreasonably withheld of
the non-assigning, non-delegating or non-subcontracting party; provided
however, notwithstanding the foregoing, Anthem BC&BS shall be entitled
to assign this Agreement, or any portion thereof; or any of its rights,
duties or obligations contained in this Agreement to any entity which
has the right to use the Blue Cross and/or Blue Shield service marks or
trade names in connection with any service performed by such entity,
whether that entity be a member, licensee or affiliate of the Blue
Cross and Blue Shield Association. Any attempted assignment, delegation
or subcontracting in violation of this provision shall be void and have
no binding effect.
11.5 USE OF NAME. Each party shall obtain approval from the other party
prior to making any media releases, public announcements or public
disclosures relating to this Agreement or its subject matter,
including, without limitation, promotional or marketing material, but
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not including any announcement intended solely for internal
distribution by such party or any disclosure required by legal,
accounting or regulatory requirements beyond the reasonable control of
that party prior to the release. Each party shall not unreasonably
withhold approval of such release. CONTRACTING PROVIDER shall not
distribute any materials to Members without the prior written approval
of Anthem BC&BS.
Neither CONTRACTING PROVIDER nor Anthem BC&BS shall use the other
party's name, symbols, trademarks or service marks in advertising or
promotional materials without the prior written consent of the other
party and shall cease any such usage immediately upon written notice to
the party or upon termination of this Agreement, whichever is sooner.
Notwithstanding this limitation, Anthem BC&BS may furnish relevant
information concerning CONTRACTING PROVIDER and Represented Providers
in directories and other promotional material.
11.6 WAIVER OF VIOLATIONS. Any waiver by party hereto of a violation of any
provision of this Agreement shall not bar any action for subsequent
violations of this Agreement.
11.7 INTERPRETATION OF TERMS. The terms of this Agreement relating to
quality of care, utilization, benefits or reimbursement shall be
interpreted solely by Anthem BC&BS.
11.8 APPLICABLE LAW. This Agreement shall be governed by State and federal
law, as applicable, and is subject at all times to the approval of the
appropriate regulatory authorities. This Agreement is intended to
fulfill the requirements of, and shall be governed by and construed in
accordance with, all government contractual obligations of Anthem
BC&BS.
11.9 APPROPRIATENESS OF CARE. Both Anthem BC&BS and CONTRACTING PROVIDER
understand and agree that any payments made directly or indirectly to
CONTRACTING PROVIDER under any utilization incentive provisions set
forth in this Agreement are not made as an inducement to reduce or
limit medically necessary services to any specific Member.
11.10 MODIFICATION OF THIS AGREEMENT. Except as otherwise provided, this
Agreement may be amended or modified in writing as mutually agreed upon
by the parties. In addition, Anthem BC&BS may modify any provision upon
thirty (30) days written notice to CONTRACTING PROVIDER. Failure of
CONTRACTING PROVIDER to object to such modification during the thirty
(30) day notice period shall constitute acceptance of such
modification. In addition, Anthem BC&BS may make technical amendments
to this Agreement upon notice to CONTRACTING PROVIDER as may be
required by a state or federal regulatory agency to whose authority
Anthem BC&BS operations are subject. Anthem BC&BS may also modify
Administrative Policies and Procedures and the Coverage Document
effective upon notice to CONTRACTING PROVIDER, provided
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that such modification does not cause CONTRACTING PROVIDER to incur
unreasonable costs or expense as a result.
11.11 PROTECTION OF PLAN DATA AND OTHER PROPRIETARV INFORMATION. (a) For
purposes of this Section 11.11, "Plan Data" shall mean all records and
data received, generated, used, stored or acquired by CONTRACTING
PROVIDER pursuant to this Agreement or in furtherance of CONTRACTING
PROVIDER's obligations under this Agreement, but shall not include any
information, documentation or materials which were CONTRACTING
PROVIDER's property or work product prior to the Effective Date. All
Plan Data is and shall remain the exclusive property of Anthem BC&BS
and shall be returned to Anthem BC&BS, at its request and at no
additional charge, promptly upon termination of CONTRACTING PROVIDER's
duties under this Agreement in the format designated by Anthem BC&BS.
CONTRACTING PROVIDER hereby waives any interest, title, lien or other
right to any Plan Data. Plan Data will be returned to Anthem BC&BS in
good order.
(b) CONTRACTING PROVIDER shall establish and maintain reasonable
safeguards against the destruction, loss and misappropriation of Plan
Data in its possession. Such safeguards shall be at least equivalent to
those used by CONTRACTING PROVIDER for similar customers and will
include, without limitation: (i) safeguarding of all identification
codes/passwords and all information relating to each Member, which is
in the possession of CONTRACTING PROVIDER; (ii) safeguarding the
physical integrity and condition of the media under CONTRACTING
PROVIDER's control which contain such information, files and Plan Data;
and (iii) ensuring that access to Plan Data is available only to Anthem
BC&BS and CONTRACTING PROVIDER, except as specified herein or as
required by law. If any of the Plan Data is lost, damaged or destroyed
while in the possession or under the control of CONTRACTING PROVIDER,
CONTRACTING PROVIDER shall promptly and accurately reconstruct such
Plan Data, if feasible, so that the disruption to Anthem BC&BS's
activities and Members is minimized. Throughout the term of this
Agreement, CONTRACTING PROVIDER shall maintain an effective disaster
recovery plan wherever any Plan Data are processed or stored, which
plan shall be subject to Anthem BC&BS's review and approval. The
disaster recovery plan will include, without limitation, emergency
contingencies and step-by-step directions for recovering the Plan Data.
(c) During the term of this Agreement and for three (3) years after the
termination of this Agreement, CONTRACTING PROVIDER shall keep
confidential all Anthem BC&BS information related to or generated under
this Agreement, including but not limited to all patient, Member, Payor
and provider lists (other than information relating to Represented
Providers), Plan Data, all Anthem BC&BS fee schedules and compensation
arrangements, all statistical data and reports, all financial
information, all Utilization/Quality Management Program information
related to services to Members (collectively or in any part the
"Information"), and CONTRACTING PROVIDER shall
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protect the Information and prevent it from unauthorized disclosure by
CONTRACTING PROVIDER's agents, officers, or employees. For three (3)
years subsequent to the termination of this Agreement, CONTRACTING
PROVIDER shall not utilize or allow its agents, officers, or employees
to utilize the Information in any way unless authorized by Anthem BC&BS
in writing. CONTRACTING PROVIDER agrees to take all necessary
precautions to prevent the disclosure to third parties of the
Information; provided, however, that if CONTRACTING PROVIDER is
required to produce the Information by order of any governmental agency
or other regulatory body it may, upon not less than five (5) Business
Days' written notice to Anthem BC&BS, release the Information. However,
this requirement for written notice shall be waived if a governmental
order or subpoena requires the release of the Information in a shorter
period of time than CONTRACTING PROVIDER can reasonably give prior
written notice to Anthem BC&BS, in which case CONTRACTING PROVIDER
shall give Anthem BC&BS written notice thereof as soon as is
practicable.
(d) CONTRACTING PROVIDER agrees to limit access to the Information
collected in performing its duties hereunder to its officers, directors
and employees who are directly involved in the performance of
CONTRACTING PROVIDER's services described in this Agreement.
CONTRACTING PROVIDER agrees that it shall take appropriate action with
respect to the persons permitted access to the Information to ensure
that such persons comply fully with CONTRACTING PROVIDER's duties
hereunder. If CONTRACTING PROVIDER engages a consultant who would have
access to the Information, then the consultant must execute an
agreement to maintain the confidentiality of the Information in
accordance with this Section. This Section 11.11 shall survive any
termination or expiration of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
Effective Date.
ANTHEM HEALTH PLANS, INC. OPTICARE EYE HEALTH CENTERS, INC.
By: /s/ By: /s/
-------------------------------- -----------------------------
SIGNATURE SIGNATURE
Gene Huang
-------------------------------- ---------------------------------
NAME Stephen Arnsten NAME (TYPE OR PRINT)
Executive Vice President
-------------------------------- ---------------------------------
TITLE Vice President, Provider TITLE
Relations and Contracts
March 17, 1999 March 12, 1999
----------------------- ---------------------------------
DATE DATE
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BLUE CROSS & BLUE SHIELD -- MEDICARE RISK PLAN
CONTRACTING PROVIDER SERVICES AGREEMENT
THIS AGREEMENT effective the ___ day of ______, 1996 (the "Effective Date"), by
and between the Blue Cross & Blue Shield of Connecticut, Inc. ("BC&BS"), doing
business as Blue- Care Health Plan, a licensed Health Care Center, and OptiCare
Eye Health Centers, Inc. ("CONTRACTING PROVIDER") located in Waterbury,
Connecticut.
WHEREAS, BC&BS is in the business of providing prepaid healthcare services to
persons who wish to avail themselves of such services ("Members");
WHEREAS, BC&BS operates a program entitled _____________ ("Medicare Risk Plan")
to provide services under a contract with the Health Care financing
Administration to Medicare beneficiaries;
WHEREAS, BC&BS and CONTRACTING PROVIDER mutually desire that CONTRACTING
PROVIDER provide or arrange to provide quality medical services to Medicare
beneficiaries in a cost-effective manner in accordance with the terms and
conditions of this Agreement and applicable law; and
WHEREAS, BC&BS and CONTRACTING PROVIDER mutually desire to preserve and enhance
patient dignity.
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises
contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
For purposes of this Agreement and any attachment, exhibit or schedule attached
hereto, the following terms shall have the meaning set forth below:
1.1 Act means Title XVIII of the Social Security Act, Section 1876, as
amended, by the Tax Equity and Fiscal Responsibility Act of 1982.
1.2 Agreement means this Contracting Provider Services Agreement.
1.3 Copayment means a payment which may be collected directly a
Participating Provider within the terms of this Agreement and the
Subscriber Agreement. Such payment may be a fixed amount or a
percentage of applicable compensation for Covered Services rendered to
a Medicare Risk Plan member.
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1.4 Covered Services means those services covered under BC&BS's Medicare
contract with HCFA, as set forth in the applicable Subscriber
Agreement.
1.5 Credentialing means the process of collecting, verifying and evaluating
information in the credentialing process. Credentialing will be
repeated on a periodic basis. ("Re-Credentialing").
1.6 Emergency Services means covered, medically necessary inpatient or
outpatient, medical or hospital services that are needed immediately
because of sudden unexpected injury or illness and cannot be delayed
without risk of permanent damage to the Medicare Risk Plan Member. Such
services are considered Emergency Services as long as transfer of the
Member to a Participating Hospital or other designated alternative is
precluded because of risk to the Member's health or because transfer
would be unreasonable given the distance involved in the transfer and
the nature of the medical condition.
1.7 Subscriber Agreement means the written BC&BS Medicare Risk Plan
Subscriber Agreement, including any amendments or endorsements thereto,
which sets forth a description of services to which a Medicare Risk
Plan Member is entitled. The Subscriber Agreement is incorporated by
reference herein. (A Benefit Summary from the Subscriber Agreement is
attached hereto as Exhibit B - Generic Product Description.)
1.8 Exhibit(s) means Exhibits A and B to this Agreement, incorporated
herein by reference as if set forth in full.
1.9 HCFA means the Health Care Financing Administration. The BC&BS Medicare
Risk Plan is conducted pursuant to the BC&BS Medicare Risk Contract
with HCFA.
1.10 Medical Director means a duly licensed physician designated by BC&BS to
manage the Utilization/Quality Management Programs, or his/her
authorized designee.
1.11 Medicare Fee Schedule means the Medicare Program Fee Schedule including
application of transition rule for physician services effective January
1, 1992, based on the Resource- Based Relative Value Scale including
annual revisions and updates for the specific Plan geographic area.
1.12 Medicare Risk Contract means the applicable contract between BC&BS and
HCFA for the provision of medical services to Members.
1.13 Member or Medicare Risk Plan Member means a person eligible for and
enrolled in BC&BS's Medicare Risk Plan under a Member Agreement.
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1.14 Participating Hospital means a hospital which is a Participating
Provider with respect to the Medicare Risk Plan.
1.15 Participating Provider means any health care provider who or which
agrees to render or arrange for services or supplies for which benefits
are available under the Medicare Risk Plan, to comply with the
requirements of such Plan and to accept negotiated or other binding
fees as payment in full for Covered Services rendered to Members and
who is accepted by BC&BS as a Participating Provider.
1.16 Plan or Medicare Risk Plan means a program offered by BC&BS to Medicare
beneficiaries, including those beneficiaries receiving additional
benefits paid for by their former employer as well as any new plans
developed or marketed by BC&BS for Medicare beneficiaries. For the
purposes of this Agreement, the Medicare Risk Plan shall mean the
specific Medicare Risk Plan operating in the Service Area, including
all Members assigned to this Plan.
1.17 Primary Care Physician means a Contracting Physician in the specialty
of internal medicine, pediatrics, family medicine or general practice
to which Plan Members will have access without a referral. A Primary
Care Physician (a) provides initial and primary care services to Plan
Members, (b) maintains the continuity of a Plan Member's medical care
and (c) initiates and manages referrals to other Contracting Providers
as required by the Medicare Risk Plan.
1.18 Provider Manual means the manual and materials, including
Administrative Policies and Procedures, furnished to CONTRACTING
PROVIDER by BC&BS for use of the former during the term of this
Agreement, as amended and supplemented by BC&BS from time to time.
BC&BS retains the right to add to, delete from and otherwise modify the
Provider Manual from time to time. CONTRACTING PROVIDER acknowledges
that the Provider Manual and other written materials provided by BC&BS
are copyrighted and that the Provider Manual and other information and
materials provided by BC&BS to CONTRACTING PROVIDER is proprietary and
confidential and constitutes trade secrets of BC&BS.
1.19 Represented Provider means a licensed physician or other licensed
provider (a) who is employed by, or associated with or otherwise
represented by the Contracting Provider; (b) who is authorized by the
Contracting Provider to provide services pursuant to this Agreement;
(c) who has completed a Health Care Profession Credentialing
Application, if required by BC&BS; (d) who has agreed with the
Contracting Provider to be subject to the requirements of this
Agreement to the extent applicable to Represented Provider; and (e) who
is accepted by BC&BS as a Participating Provider.
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1.20 RBRVS means Resource-Based Relative Value Scale, including any updated
revisions.
1.21 Service Area or Plan Service Area means Hartford and New Haven
counties, and up to three additional contiguous counties, in which
Covered Services Covered Services are available from Contracting
Providers. Service Area or Plan Service Area also includes the areas
within the 30-mile radius around each Contracting Hospital, whether or
not those areas fall outside of Hartford or New Haven counties or their
contiguous counties.
1.22 State means the State of Connecticut.
1.23 Urgently Needed Services means Covered Services which are medically
necessary and required in order to prevent serious deterioration of the
Plan Member's health that results from an unforeseen illness or injury
while the Member is temporarily absent from the service area and
receipt of health care cannot be delayed for medical reasons until the
Member returns to the geographic service area.
1.24 Utilization/Quality Management Programs means the processes and
programs established by or on behalf of BC&BS as many be evidenced by a
written description pursuant to which the access to, delivery, quality
and utilization of health care services are assessed and reviewed in
terms of medical necessity, efficiency, effectiveness, reasonableness
of services, quality of services, and/or improved health outcomes.
ARTICLE 2 - CONDITIONS PRECEDENT
2.1 This Agreement is subject to BC&BS's execution of contracts with
hospitals, physicians, and ancillary service providers who collectively
constitute a service delivery system. BC&BS shall use its best efforts
to develop these agreements in good faith but cannot warrant or
guarantee that such agreements can be reached.
2.2 This Agreement is subject to BC&BS receiving approval from the
appropriate local, state and federal governmental agencies which have
regulatory powers with respect to BC&BS or its programs. Such agencies
may include, but are not limited to, HCFA and the Connecticut
Department of Insurance.
ARTICLE 3 - RELATIONSHIP OF THE PARTIES
3.1 Independent Contractor. CONTRACTING PROVIDER is an independent
contractor of BC&BS. Neither CONTRACTING PROVIDER or other agent or
representative of CONTRACTING PROVIDER shall be deemed or construed to
be an employee of BC&BS for any reason including, but not limited to,
the Federal Unemployment Tax Act, any workers' compensation act and
income tax withholding laws. CONTRACTING
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PROVIDER shall have sole responsibility for the payment of all federal
and state income taxes applicable to its services and the services of
CONTRACTING PROVIDER and its other agents and representatives.
3.2 Patient Care. Participating Providers are responsible for patient care
decisions.
3.3 Professional Judgment. CONTRACTING PROVIDER is not required to
recommend any procedure or treatment which CONTRACTING PROVIDER deems
professionally unacceptable.
3.4 Non-exclusive Agreement. CONTRACTING PROVIDER and BC&BS are not
precluded from entering into agreements similar to this with other
entities, persons or organizations.
3.5 Rights Reserved by BC&BS. BC&BS does not guarantee to CONTRACTING
PROVIDER any minimum number of Members. In addition, CONTRACTING
PROVIDER acknowledges that BC&BS does not warrant or guarantee that
CONTRACTING PROVIDER will be utilized by a Member or by any number of
Members, or that CONTRACTING PROVIDER's services will be identified or
made available as those of a Participating Provider for any number,
subset or group of Members.
3.6 Non Competition Contracting Provider agrees that during the term of
this Agreement and for a period of two (2) years following the
termination or expiration of this Agreement it shall not, directly or
indirectly nor through any subsidiary or affiliate, enter into an
agreement with any state or federal government agency or entity to
provide Medicare beneficiaries on a risk basis. For purposes of this
provision, a "subsidiary" means any organization of which Medical Group
or Medical Group's parent company or sole voting member is, directly or
indirectly, the sole shareholder or sole voting member. An "affiliate"
means any organization of which Medical Group or Medical Group's parent
company or sole voting member is, directly or indirectly, the owner of
fifty percent (50%) or more of the stock or elects fifty percent (50%)
or more of the governing body.
ARTICLE 4 - CREDENTIALING AND RE-CREDENTIALING
4.1 Credentialing Requirements. In order to become a Participating
Provider, each provider must submit to BC&BS a Credentialing
application. BC&BS's approval of a Contracting Provider's Credentialing
application and its determination of Contracting Provider's compliance
with BC&BS's applicable standards, if any, as they may be amended by
BC&BS from time to time, are conditions precedent to this Agreement.
CONTRACTING PROVIDER shall be subject to, and CONTRACTING PROVIDER
shall cooperate with
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Re-Credentialing on a periodic basis. Such processes include, but are
not limited to, medical records audits, office site surveys, and
patient satisfaction surveys. BC&BS shall determine in its sole
discretion whether any Contracting Provider meets its Credentialing
standards, whether CONTRACTING PROVIDER is accepted as a Participating
Provider and whether to approve CONTRACTING PROVIDER's continued
participation upon Re-Credentialing. Such approval may be conditioned
upon compliance with specific limitations or corrective actions.
CONTRACTING PROVIDER shall notify BC&BS in writing within ten (10) days
of any material change in the information set forth in its initial
Credentialing application or Re-Credentialing application.
4.2 Licensing. CONTRACTING PROVIDER and its Represented Providers must be
duly licensed under applicable State law to provide the health care
services that are the subject of this Agreement.
4.3 Additional Credentialing. BC&BS reserves the right to require
CONTRACTING PROVIDER and its Represented Providers to document
additional credentials before BC&BS will authorize CONTRACTING PROVIDER
and its Represented Providers to perform certain procedures which may
be designated by BC&BS as necessary or required.
ARTICLE 5 - SERVICES OF CONTRACTING PROVIDER
5.1 Health Services. CONTRACTING PROVIDER will provide through its
Represented Providers, or arrange to provide, Covered Services in
accordance with the applicable Subscriber Agreement and Exhibit A -
Reimbursement Schedule. CONTRACTING PROVIDER and its Represented
Providers shall not provide Covered Services to any Member without a
prior referral when required from the Member's Primary Care Physician,
except in emergencies, and shall not, except for Emergencies, refer or
admit a Member to another provider, including Participating Providers
and non-Participating Providers, without the approval of BC&BS and/or
the Member's Primary Care Physician, except as specifically permitted
in the applicable Subscriber Agreement.
5.2 Patient Rights. CONTRACTING PROVIDER and its Represented Providers
shall not discriminate in the treatment of members or delivery of
services, either in the quality, quantity, or type of services rendered
or in any other maimer, on the basis of race, color, sex, disability,
handicap, sexual orientation, age, religion, national origin, ancestry,
Vietnam-era veteran's status, place of residence, health status, need
for health services or source of payment for services rendered.
CONTRACTING PROVIDER and its Represented Providers will observe,
protect and promote the rights of Members as patients.
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5.3 Accessibility and Continuity of Care. CONTRACTING PROVIDER through its
Represented Providers shall make all applicable Covered Services
available and accessible to Members twenty-four (24) hours per day,
seven (7) days per week, three hundred sixty-five (365) days per year
and in a manner that assures continuity of care. Contracting Provider
shall provide Covered Services at locations acceptable to BC&BS and so
as to provide convenient and timely service to Members. Contracting
Provider may discontinue any location(s) upon thirty (30) days' prior
written notice to BC&BS provided that convenient and timely service to
Members is not interrupted. The Group shall at all times maintain a
sufficient number of Represented Providers to provide convenient access
for Members. BC&BS shall work in conjunction with the Group in order to
determine whether an adequate number of Represented Providers are being
maintained by the Contracting Provider. However, final determination as
to whether there is an adequate number shall be made by BC&BS in its
sole discretion.
In the event that CONTRACTING PROVIDER uses the services of other
providers for coverage purposes, covering arrangements shall be made
with another Participating Provider except in unusual and unanticipated
circumstances when approved in advance by the Medical Director. In all
cases, CONTRACTING PROVIDER shall arrange with the covering provider
that it will accept payment from BC&BS according to the terms of this
Agreement as payment in full, except for any applicable Co-payments.
CONTRACTING PROVIDER shall assure that the covering provider will not,
under any circumstances, bill Members for Covered Services, except for
any applicable Copayments, and except as otherwise provided in the
applicable Subscriber Agreement. CONTRACTING PROVIDER shall indemnify
BC&BS and any affected member for any expense incurred by BC&BS and/or
the Member if the covering physician bills, charges or attempts to
collect any amount in excess of the amounts payable under this
Agreement.
5.4 Quality of Care. CONTRACTING PROVIDER and its Represented Providers
agree that health services provided to Members shall be of a quality
that is consistent with accepted medical and surgical practices.
5.5 Corrective Actions. CONTRACTING PROVIDER and its Represented Providers
agree to take corrective actions as directed or required under BC&BS's
Utilization/Quality Management programs within the time period
specified by BC&BS.
5.6 Liability Coverage. CONTRACTING PROVIDER and each Represented Provider
shall maintain general and professional liability coverage in a form
and amount acceptable to BC&BS. Such insurance shall cover CONTRACTING
PROVIDER and CONTRACTING PROVIDER's employees against any claim or
claims for damages arising by reason of personal injury or death,
occasioned, directly or indirectly, in connection with the performance
of any service by CONTRACTING PROVIDER under
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this Agreement. CONTRACTING PROVIDER and each represented Provider
shall give BC&BS a certificate(s) of insurance(s) evidencing such
coverage upon request. CONTRACTING PROVIDER shall notify BC&BS in
writing within ten (10) business days of any change in such liability
insurance coverage. CONTRACTING PROVIDER shall promptly notify BC&BS
of all complaints filed with any court alleging medical malpractice on
the part of the CONTRACTING PROVIDER or any Represented Provider, but
in no event later than thirty (30) days following notice to CONTRACT
PROVIDER.
5.7 Facilities and Staffing. CONTRACTING PROVIDER agrees that Covered
Services shall be provided in an appropriate facility (if Covered
Services are facility based), with sufficient staff (all of whom shall
be duly licensed as may be required under applicable law) to enable
CONTRACTING PROVIDER to provide health care services generally
recognized and accepted as being within each Represented Provider's
scope of services. BC&BS reserves the right to verify the
appropriateness of CONTRACTING PROVIDER's facilities and staff.
CONTRACTING PROVIDER hereby agrees to provide access to BC&BS during
normal business hours to perform such verification.
CONTRACTING PROVIDER, its employees and Represented Providers shall
perform duties in accordance with applicable federal, state and local
standards of professional ethics, practices and laws.
If CONTRACTING PROVIDER relocates its facility or expands to additional
facilities, it shall notify BC&BS in writing within ten (10) days
thereafter.
5.8 Records. CONTRACTING PROVIDER and its Represented Providers agrees to
maintain adequate medical, financial, administrative and other records
for the period and in the manner specified by applicable Connecticut
and federal law, and in accordance with any standards established by
BC&BS. BC&BS and CONTRACTING PROVIDER shall respect the confidential
information contained in these records in accordance with applicable
federal and state regulatory requirements.
5.9 Review and Audit. CONTRACTING PROVIDER agrees that, upon reasonable
notice, it shall make available to BC&BS for examination, audit and
copying, subject to applicable patient privacy laws, all books and
records related to Covered Services and such other documents, as shall
be requested by BC&BS. CONTRACTING PROVIDER agrees to maintain, and to
make available to BC&BS, and its representatives and agents, all of
such books and records for a period of at least five (5) fiscal years
following the close of the fiscal year in which the services were
rendered. BC&BS agrees to pay CONTRACTING PROVIDER copying charges not
to exceed the maximum Connecticut Peer Review
<PAGE>
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Organization charge per page for copies actually made by the
CONTRACTING PROVIDER, or its designee, at BC&BS's request plus postage.
BC&BS may take any action or actions, separately or in combination, as
BC&BS determines is warranted by the results of any audit, including
but not limited to: consultation with CONTRACTING PROVIDER; withholding
of payments to CONTRACTING PROVIDER, demand for immediate payment of
all sums determined to be owed by CONTRACTING PROVIDER and the
institution of action to collect such sums; reaudit; the setoff of
amounts owing by CONTRACTING PROVIDER from any future payment(s) which
would otherwise be due to CONTRACTING PROVIDER under this Agreement;
and/or the suspension or termination of this Agreement.
5.10 Administrative Protocols. CONTRACTING PROVIDER and its Represented
Providers will comply with and abide by the administrative protocols
established by BC&BS for the delivery of medically necessary health
services and for the utilization of and access to health care services.
BC&BS's current administrative protocols are specified in the Provider
Manual. These protocols may be amended by BC&BS and shall become
effective upon notice to CONTRACTING PROVIDER.
5.11 Grievance System. BC&BS will maintain and administer a grievance system
for Members. Complaints received by BC&BS concerning services rendered
by CONTRACTING PROVIDER and its Represented Providers will be resolved
in accordance with the applicable grievance procedures. CONTRACTING
PROVIDER and its Represented Providers agree to cooperate with BC&BS in
the resolution of Member complaints and to be bound by such
resolutions.
5.12 Indemnification. CONTRACTING PROVIDER shall indemnify and hold BC&BS,
including its officers, directors, employees, representatives and
agents harmless from and against any and all losses and damages
(including reasonable attorneys' fees) resulting from the alleged
neglect, breach of contract or other action of such indemnifying party,
its officers, directors, employees, representatives or agents (but not
medical staff members who are independent contractors) relating in any
way to the performance or omission of any act or responsibility of such
indemnifying party under this Agreement.
5.13 Notice or Change in Operations. CONTRACTING PROVIDER shall notify BC&BS
in writing within five (5) business days after the occurrence of any of
the following events:
(a) Any action to restrict, suspend or revoke any license, permit
or approval required for CONTRACTING PROVIDER to render
Covered Services;
<PAGE>
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(b) Any final judgment or settlement in excess of $100,000 of any
legal action brought against CONTRACTING PROVIDER for
negligence in rendering services;
(c) Any other situation which might materially and/or adversely
affect CONTRACTING PROVIDER's ability to carry out its duties
and obligations under this Agreement;
(d) Any action taken by CONTRACTING PROVIDER to restrict, suspend,
revoke or limit the medical staff privileges of any
Participating Physician, other than a suspension of less than
thirty (30) days for a medical records infraction or other
administrative deficiency, provided that the CONTRACTING
PROVIDER is otherwise required to report such action to the
National Practitioner Data Bank pursuant to applicable federal
law.
ARTICLE 6 - AUTHORIZATIONS AND REFERRALS
6.1 Prior Authorization of Services. CONTRACTING PROVIDER and its
Represented Provider's agree that it shall obtain prior authorization
from BC&BS before providing any Covered Services or referring a Member
for any Covered Services referenced in the Provider Manual as requiring
such prior authorization, except in an Emergency. CONTRACTING PROVIDER
acknowledges that authorization from BC&BS is not a commitment to pay
for such Covered Services.
6.2 Compliance with Referral System. CONTRACTING PROVIDER and its
Represented Providers agree to comply with BC&BS's referral policies
and to furnish referral physicians and other Participating Providers
complete information on treatment procedures and diagnostic tests
performed.
6.3 Referrals to Selected Participating Providers. CONTRACTING PROVIDER
acknowledges that for selected Covered Services, BC&BS may designate an
exclusive Participating Provider or a limited number of Participating
Providers to whom all CONTRACTING PROVIDER referrals or orders for that
Covered Service must be made, except in an Emergency.
6.4 Restrictions on Certain Non-Covered Services. In the event BC&BS denies
a request for coverage of experimental or other specifically designated
non-Covered Services, as identified in the Provider Manual, CONTRACTING
PROVIDER and its Represented Providers shall, prior to ordering or
providing such non-Covered Services, inform the Member (a) that the
services are not Covered Services; (b) that BC&BS will not pay or be
liable for such services; and (c) that Member will be financially
liable for such services.
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In each such instance, CONTRACTING PROVIDER shall obtain a waiver and
release from the Member acceptable to BC&BS.
ARTICLE 7 - UTILIZATION/QUALITY MANAGEMENT PROGRAMS
7.1 Cooperation. CONTRACTING PROVIDER and its Represented Provider's shall
cooperate with and abide by BC&BS's Utilization/Quality Management
Programs including, but not limited to, prescription drug benefit
management, laboratory service management, site surveys, case
management and discharge planning and utilization review procedures
prospective, concurrent and retrospective) for determining medical
necessity.
ARTICLE 8 - BILLING AND HOLD HARMLESS
8.1 Member Billing Prohibition. CONTRACTING PROVIDER and its Represented
Providers agree to seek payment only for Covered Services provided by
CONTRACTING PROVIDER. CONTRACTING PROVIDER may not bill BC&BS for
services provided by an affiliate of CONTRACTING PROVIDER to Members
for whom such provider does not serve as a Participating Provider and
any such affiliate of CONTRACTING PROVIDER shall be prohibited from
billing Members directly for such services. CONTRACTING PROVIDER shall
accept as full payment for the services of the affiliated provider the
amounts paid to CONTRACTING PROVIDER pursuant to this Agreement and
shall not bill Members for any amount except for Copayments or for non-
Covered Services provided that the CONTRACTING PROVIDER obtains the
consent of the Member before providing such service. CONTRACTING
PROVIDER hereby agrees that in no event, including but not limited
to non-payment by BC&BS, BC&BS's breach of this Agreement or BC&BS's
insolvency, shall CONTRACTING PROVIDER or its Represented Provider's
charge, collect a deposit from, seek compensation, remuneration or
reimbursement from, or have any recourse against a Member or persons
acting on behalf of a Member for Covered Services provided pursuant to
this Agreement. CONTRACTING PROVIDER further agrees that: (a) this
provision shall survive the termination of this Agreement regardless of
the cause giving rise to termination. and shall be construed to be for
the benefit of the Member; (b) this provision supersedes any oral or
written agreement now existing or hereafter entered into between the
CONTRACTING PROVIDER and a Member, or persons acting on a Member's
behalf; and (c) any amendments, modifications or changes to this
Section 8.1 shall be effective no earlier than thirty (30) days after
the Connecticut Department of Insurance and/or HCFA, as applicable, has
received written notice of such proposed changes.
<PAGE>
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8.2 Billing for Covered Services. CONTRACTING PROVIDER shall submit all
billings and/or encounters electronically in accordance with BC&BS's
billing policies and procedures and upon forms which may be specified
by BC&BS. If BC&BS's billing procedures are not followed, if the
required information is not present or if the billing form is not
acceptable to BC&BS, BC&BS shall not be obligated to make any payment
to CONTRACTING PROVIDER until necessary corrections are made by
CONTRACTING PROVIDER, and CONTRACTING PROVIDER shall not bill or make
any other attempt to collect such amount from a Member.
8.3 Timely Claims Filing. CONTRACTING PROVIDER shall use its best efforts
to submit any claims or encounter information for Covered Services
rendered to a Member within thirty (30) days from the end of the month
in which CONTRACTING PROVIDER renders such services. In no event,
regardless of the cause or circumstance, shall BC&BS or the Member be
responsible for or liable for any claim submitted to BC&BS more than
sixty (60) days after a Member's discharge.
8.4 Waiver of Member Charges. CONTRACTING PROVIDER and its Represented
Providers shall not waive or reduce, or advertise that they will waive
or reduce, any Copayments.
ARTICLE 9 - COMPENSATION
9.1 Compensation for Covered Services. As compensation in full for Covered
Services CONTRACTING PROVIDER agrees to accept payment in accordance
with the terms set forth in the attached Exhibit A - Reimbursement
Schedule.
9.2 Coordination of Benefits and Third Party Recovery.
If, pursuant to coordination of benefits, subrogation, duplication of
benefits, third party recovery or any other provision of the applicable
Subscriber Agreement, a Member is entitled to coverage of CONTRACTING
PROVIDER's services from another health care plan or third party payor,
and such other plan or payor is obligated to pay its benefits before
BC&BS is obligated to pay its benefits, the payment to CONTRACTING
PROVIDER under this Agreement shall be reduced by the payment of the
other plan or payor. If CONTRACTING PROVIDER has already been paid
pursuant to this Agreement, BC&BS may, at its option, elect to collect
and retain funds from the other plan or payor. In no event shall any
amount be payable to CONTRACTING PROVIDER such that, in combination
with any amounts received from another plan or payor, CONTRACTING
PROVIDER shall receive more than is otherwise payable under this
Agreement, including copayments.
<PAGE>
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If CONTRACTING PROVIDER has collected a payment or Copayments from
BC&BS or a Member, where duplicate coverage exists and CONTRACTING
PROVIDER is subsequently reimbursed for the service by another health
care plan or payor, CONTRACTING PROVIDER shall refund or credit to
BC&BS or the Member, as appropriate, the portion, if any, of such
payment or Copayments which represents an overpayment to CONTRACTING
PROVIDER. In no event shall this Agreement be construed to require
BC&BS to pay any amount which, when combined with any other amount
payable to CONTRACTING PROVIDER, would be in excess of the maximum
amount payable by law for any Covered Service.
ARTICLE 10 - TERM, TERMINATION AND RENEWAL
10.1 Term of Agreement. This Agreement shall commence on the Effective Date
of this Agreement and shall continue until terminated as provided
herein.
10.2 Termination Without Cause. Any party may terminate this Agreement
without cause by providing to the other party written notice of
termination one hundred twenty (120) days in advance of the intended
termination date.
10.3 Termination of Agreement By BC&BS. This Agreement may be terminated or
suspended by BC&BS immediately upon notice to CONTRACTING PROVIDER, in
recognition of BC&BS's concern and interest in ensuring quality of
care, if:
(a) BC&BS determines that CONTRACTING PROVIDER's continuation as a
Participating Provider poses risk of danger to any Member;
(b) CONTRACTING PROVIDER materially breaches a term of this
Agreement;
(c) CONTRACTING PROVIDER engages in any activity to disrupt BC&BS's
business;
(d) BC&BS determines, in its discretion, that CONTRACTING PROVIDER
does not qualify or meet applicable standards for
Re-Credentialing;
10.4 Termination by BC&BS or CONTRACTING PROVIDER. (a) Notwithstanding any
provision in this Agreement, if at any time there shall be filed by or
against a party to this Agreement, in any court, tribunal,
administrative agency or any other forum having jurisdiction, pursuant
to any applicable law, either of the United States or of any state, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver, trustee or conservator of all or a portion
of the party's property or if a party makes an assignment for the
benefit of creditors, and if this action is not dismissed after
<PAGE>
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ninety (90) calendar days, this Agreement may be immediately canceled
and terminated by the other party.
(b) Either party may terminate this Agreement by providing the other
party with not less than sixty (60) days' prior written notice
in the event the other party materially breaches any provision
of this Agreement. The notice must specify the nature of said
material breach. The breaching party shall have thirty (30) days
from receipt of the notice to correct the material breach. If
the breaching party fails to cure the material breach within the
thirty (30) day period, the non- breaching party may terminate
this Agreement, effective upon completion of the sixty (60) day
notice period.
In the event the material breach creates an emergency or a situation
whereby the nonbreaching party is in significant jeopardy as to its
ability to perform under this Agreement in the manner so intended by
the parties to this Agreement, then the nonbreaching party may give
forty-eight (48) hours' notice of the material breach to the other
party. If breaching party fails to cure the material breach within this
forty-eight (48) hour time frame, the non breaching party may terminate
this Agreement effective at the end of the forty-eight (48) hour notice
period, notwithstanding any other provision in this Agreement.
10.5 Effect of Termination. In the event this Agreement is terminated,
regardless of the circumstances of termination, CONTRACTING PROVIDER
and its Represented Providers agree to serve Members through the last
day this Agreement is in effect. Notwithstanding the foregoing,
eligible Members who are patients of CONTRACTING PROVIDER may, at
BC&BS's election, continue after termination of this Agreement as
patients until other arrangements can be made or until the Medicare
Risk Plan terminates, whichever is first. During such period,
CONTRACTING PROVIDER shall be paid in accordance with the terms of this
Agreement and shall cooperate with BC&BS's policies and procedures in
relation to those Members. CONTRACTING PROVIDER shall cooperate with
BC&BS in notifying Members of the termination of this Agreement.
Termination of this Agreement, except as provided herein to the
contrary, shall not affect the rights, obligations and liabilities of
the parties arising out of transactions occurring prior to termination.
CONTRACTING PROVIDER shall, upon request of BC&BS, provide to BC&BS or
such Participating Provider as is designated by BC&BS, copies of Member
medical records and all records necessary for the settlement of
outstanding medical bills. BC&BS reserves the right to transfer those
Members being treated by CONTRACTING PROVIDER and its Represented
Providers to other Participating Providers once notice of the
termination of this Agreement is provided.
<PAGE>
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10.6 Compensation for Services Immediately after Notice to Member of
CONTRACTING PROVIDER's Termination. Notwithstanding anything to the
contrary in this Agreement, and without derogation of any rights of
BC&BS or Members under Section 10.5 (Effect of Termination) of this
Agreement, CONTRACTING PROVIDER agrees to accept compensation for its
services to Members in accordance with the terms of this Agreement for
Covered Services rendered through at least the fifth business day after
the date of notice to Members of the termination or expiration of this
Agreement.
10.7 Cessation of BC&BS Operations. If BC&BS terminates its Medicare Risk
Plan operations, CONTRACTING PROVIDER and its Represented Providers
agree to provide Covered Services to Members until the last day of the
month in which BC&BS discontinues its operations, or if a Member is
still hospitalized on that date, until the Member is discharged from
the CONTRACTING PROVIDER.
10.8 Bankruptcy. Notwithstanding any provision in this Agreement, if at any
time there shall be filed by or against a party to this Agreement, in
any court, tribunal, administrative agency or any other forum having
jurisdiction, pursuant to any applicable law, either of the United
States or of any state, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver, trustee or
conservator of all or a portion of the party's property or if a patty
makes an assignment for the benefit of creditors, and if this action is
not dismissed after ninety (90) calendar days, this Agreement may be
immediately canceled and terminated by the other party.
10.9 Adverse Governmental Action. In the event any action of any department,
branch, or bureau of the federal, state or local government materially
adversely affects either party's performance of obligations under this
Agreement, then that party shall notify the other of the nature of this
action, including in the notice a copy of the adverse action. The
parties shall meet within thirty (30) days and shall, in good faith,
attempt to negotiate a modification to this Agreement that minimizes
the adverse effect. Notwithstanding any other provision of this
Agreement, if the parties fail to reach a negotiated modification
concerning the adverse action, then the affected party may terminate
this Agreement by giving at least one hundred twenty (120) days notice
or may terminate sooner if agreed to by both parties.
ARTICLE 11 - APPEALS
11.1 Appeals. Except for decisions under Section 10.2 (Termination by
Non-Renewal), if CONTRACTING PROVIDER objects to a decision by BC&BS
under this Agreement, CONTRACTING PROVIDER may appeal such decision by
following the procedures established in this Article 11. Such appeal
must be submitted in writing within thirty (30) days of the date of
BC&BS's decision.
<PAGE>
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11.2 Procedures Applicable to Appeals. All appeals shall be considered
pursuant to such procedures as BC&BS, in its discretion, elects to
adopt. It is agreed that the availability of this appeal process does
not limit or expand any rights CONTRACTING PROVIDER may have, and does
not limit or expand the discretion of BC&BS as provided in this
Agreement, but shall serve as a procedural means to facilitate internal
review by BC&BS of disputes with CONTRACTING PROVIDER.
ARTICLE 12 - RESPONSIBILITIES OF BC&BS
12.1 BC&BS shall provide, except as otherwise provided for in Exhibit A,
necessary and appropriate marketing, administrative, claims processing,
utilization and quality management, and underwriting functions that are
required of a federally qualified HMO a HCFA Medicare risk contractor.
BC&BS shall have responsibility of all payment for Covered Services.
12.2 BC&BS shall arrange for health care benefits for Members in accordance
with the BC&BS Medicare risk contract.
12.3 BC&BS shall furnish CONTRACTING PROVIDER with a means of identifying
those Members who are enrolled in Plans. Enrolled Members in any
Medicare Plan must be certified by HCFA as eligible to receive services
under this Agreement.
12.4 BC&BS shall have sole responsibility for the advertising and marketing
of all BC&BS Plans. CONTRACTING PROVIDER will advertise its
participation in any Medicare Plan with prior written approval of
BC&BS.
12.5 BC&BS shall monitor the quality of health care provided to Members in
accordance with all applicable legal requirements.
12.6 BC&BS shall use best efforts to ensure that only individuals who meet
eligibility requirements stated in this Agreement and required under
Section 1876 of the Act, as amended, shall be enrolled as Plan Members.
Individuals must meet the following conditions for enrollment:
a. The individual must be entitled to Medicare Part A and Part B,
or Part B only benefits, and must pay any applicable premium;
b. The individual must permanently reside within the Medicare
Plan Service Area;
c. At the time of enrollment, the individual must not be
receiving hospice services pursuant to the Medicare hospice
election;
<PAGE>
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d. At the time of enrollment, the individual must not have been
medically determined to have End Stage Renal Disease (ESRD)
except where the individual is a current BC&BS commercial
Member and is converting enrollment to the BC&BS Medicare
Plan.
ARTICLE 13 - MISCELLANEOUS
13.1 Notices. All notices provided for herein shall be in writing and shall
be deemed given when sent by either (a) facsimile transmission using
equipment that provides automatic verification of transmission to the
receiving party's facsimile equipment or (b) certified or registered
mail, postage prepaid, return receipt requested, to the parties hereto
at their following addresses, or at such other addresses as the parties
hereto may designate in writing from time to time.
TO CONTRACTING PROVIDER:
John B. Davis, VP Operations, OptiCare
--------------------------------------
87 Grandview Avenue
--------------------------------------
Waterbury, CT 06708
--------------------------------------
To BC&BS:
Medicare Risk Program
Blue Cross and Blue Shield of Connecticut, Inc.
370 Bassett Road
North Haven, CT 06473-4201
Attn:
13.2 Entire Agreement. This Agreement, together with any attachments,
schedules and exhibits attached to this Agreement, contains all of the
terms and conditions agreed upon by the parties and supersedes all
other agreements between the parties related to the subject matter
hereof.
13.3 Impossibility of Performance. No party hereto shall be deemed to be in
violation of this Agreement if such patty is prevented from performing
any of its obligations hereunder for any reason beyond its control,
including without limitation, acts of God or of the public
<PAGE>
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enemy, flood, storm, strike, statute, regulation, rule or action of any
federal, state or local government.
13.4 Assignment. No assignment, delegation or subcontract in whole or in
part, of all or any portion of this Agreement or any of the rights,
duties or obligations contained herein shall be made by either party
without the prior written consent of the non-assigning, non- delegating
or non-subcontracting party; provided however, notwithstanding the
foregoing, BC&BS shall be entitled to assign this Agreement, or any
portion thereof, or any of its rights, duties or obligations contained
in this Agreement to any entity which has the right to use the Blue
Cross and/or Blue Shield service marks or trade names in connection
with any service performed by such entity, whether that entity be a
member, licensee or affiliate of the Blue Cross and Blue Shield
Association. Any attempted assignment, delegation or subcontracting in
violation of this provision shall be void and have no binding effect.
13.5 Identification of CONTRACTING PROVIDER. CONTRACTING PROVIDER and its
Represented Providers shall permit BC&BS to use the names, addresses,
phone numbers, types of practices of same in any marketing or other
BC&BS material or information.
13.6 Waiver of Violations. Any waiver by party hereto of a violation of any
provision of this Agreement shall not bar any action for subsequent
violations of this Agreement.
13.7 Interpretation of Terms. The terms of this Agreement relating to
quality of care, utilization, benefits or reimbursement shall be
interpreted solely by BC&BS.
13.8 Applicable Law. This Agreement shall be governed by Connecticut and
Federal law, as applicable, and is subject at all times to the approval
of the appropriate regulatory authorities. This Agreement is intended
to fulfill the requirements of, and shall be governed by and construed
in accordance with, all government contractual obligations of BC&BS.
13.9 Policies and Procedures. CONTRACTING PROVIDER shall abide by the
policies and procedures adopted and amended from time to time by BC&BS.
13.10 HCFA Provider Requirements. Each provider contract with or by
CONTRACTING PROVIDER shall be in conformance with the HCFA Provider
Requirements of Appendix A.
13.11 Appropriateness of Care. Both BC&BS and CONTRACTING PROVIDER understand
and agree that any payments made directly or indirectly to the
CONTRACTING PROVIDER under any utilization incentive provisions set
forth in this Agreement are not
<PAGE>
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made as an inducement to reduce or limit medically necessary services
to any specific Member.
13.12 Modification of this Agreement. Except as otherwise provided, this
Agreement may be amended or modified in writing as mutually agreed upon
by the parties. In addition, BC&BS may modify any provision upon thirty
(30) days' written notice to CONTRACTING PROVIDER. Failure of
CONTRACTING PROVIDER to object to such modification during the thirty
(30) day notice period shall constitute acceptance of such
modification. In addition, BC&BS may make technical amendments to this
Agreement upon notice to CONTRACTING PROVIDER as may be required by a
state or federal regulatory agency to whose authority BC&BS operations
are subject. BC&BS may also modify Exhibit B - Generic Product
Description, and Administrative Policies and Procedures effective upon
notice to CONTRACTING PROVIDER.
13.13 Proprietary of Information. CONTRACTING PROVIDER agrees that all
proprietary information that it receives from BC&BS, including but not
limited to data, compensation rates (but not payment methodology),
network information, trade secrets, programs, systems, work product and
other documentation, is the sole property of BC&BS. CONTRACTING
PROVIDER further agrees to keep this proprietary information strictly
confidential. The obligation of CONTRACTING PROVIDER not to disclose
proprietary information does not apply to any disclosure to a member,
which disclosures are determined by CONTRACTING PROVIDER to be
necessary or appropriate for the diagnosis and care of such member,
except to the extent such disclosures would otherwise violate
CONTRACTING PROVIDER's legal or ethical obligations. If CONTRACTING
PROVIDER receives any confidential Member medical record information
from BC&BS, then CONTRACTING PROVIDER agrees to safeguard the
confidentiality of such information to the highest degree and shall
indemnify and hold BC&BS harmless from and against any and all loss,
cost and expense (including attorneys fees) resulting from CONTRACTING
PROVIDER's failure to safeguard the confidentiality of such medical
record information.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
Effective Date.
BLUE CROSS & BLUE SHIELD OF (CONTRACTING PROVIDER)
CONNECTICUT, INC.
By: /s/ Carl J. Maleri By: /s/ Dean Yimoyines
----------------------------- --------------------------------
Signature Signature
Carl J. Maleri, Jr. Dean Yimoynies, M.D.
----------------------------- --------------------------------
<PAGE>
Name (type or print) Name (type or print)
SVP, Health Delivery Systems President, OptiCare Eye Health Centers, Inc.
- ----------------------------- --------------------------------------------
Title Title
4/26/96 4/26/96
- ----------------------------- --------------------------------
Date Date
<PAGE>
ANTHEM BLUE CROSS AND BLUE SHIELD OF CONNECTICUT
AMENDMENT TO MEDICARE + CHOICE
CONTRACTING PROVIDER SERVICES AGREEMENT
THIS AMENDMENT (the "Amendment") is entered into between ANTHEM HEALTH PLANS,
INC., a licensed Health Care Center doing business as Anthem Blue Cross and Blue
Shield of Connecticut ("Anthem BC&BS"), the permitted successor by assignment
from Blue Cross & Blue Shield of Connecticut, Inc. ("BC&BS"), and OPTICARE EYE
HEALTH CENTERS, INC. ("CONTRACTING PROVIDER") and is effective as of January 1,
1999 (the "Amendment Effective Date").
WHEREAS, Anthem BC&BS and CONTRACTING PROVIDER entered into a Contracting
Provider Services Agreement effective October 2, 1996 (together with any and all
prior amendments thereto, the "Agreement"); and
WHEREAS, Anthem BC&BS and CONTRACTING PROVIDER desire to amend the Agreement as
herein set forth.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties agree as follows:
1. All references in the Agreement to "Medicare Risk" and "Medicare Risk
Plan" shall be deemed replaced with "Medicare + Choice program" and all
references in the Agreement to "Medicare Risk Plan Member" shall be deemed
replaced with "Medicare + Choice Member" as defined below.
2. Defined Terms. Except as otherwise set forth herein, defined terms
shall have the meanings set forth in the Agreement.
The defined term "Act" set forth in Section 1.1 of the Agreement is
hereby superseded and replaced as follows:
1.1 ACT means Title XVIII of the Social Security Act, Section 1876, as
amended by the Tax Equity and Fiscal Responsibility Act of 1982 and the
Balanced Budget Act of 1997, and all HCFA rules and regulations
promulgated thereunder.
The defined term "Covered Services" set forth in Section 1.4 of the
Agreement is hereby superseded and replaced as follows:
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1.4 COVERED SERVICES means those services covered under the Medicare
Contract, as set forth in the applicable Member Agreement. Covered
Services includes CONTRACTING PROVIDER's duties and obligations set
forth in this Agreement.
The defined term "Credentialing" set forth in Section 1.5 of the
Agreement is hereby superseded and replaced as follows:
1.5 CREDENTIALING means the process of collecting, verifying and
evaluating information related to a provider's license, certification,
ownership, organization, education, service site, practice patterns,
experience, insurance, liability history, and such other information as
Anthem BC&BS may require to determine whether a provider is acceptable
for consideration as a Participating Provider. Credentialing will be
repeated on a periodic basis ("Re-Credentialing").
The defined term "Emergency Services" set forth in Section 1.6 of the
Agreement is hereby superseded and replaced as follows:
1.6 EMERGENCY SERVICES means covered, inpatient or outpatient, medical
or hospital services that are needed to evaluate or stabilize an
emergency medical condition manifesting itself by acute symptoms of
sufficient severity (including severe pain) such that a prudent lay
person, with an average knowledge of health and medicine, could
reasonably expect the absence of immediate medical attention to result
in (i) serious jeopardy to the health of the Medicare + Choice Member;
(ii) serious impairment to the bodily functions of the Member; or (iii)
serious dysfunction of any of the Medicare + Choice Member's bodily
organs or parts. Such services are considered Emergency Services as
long as transfer of the Medicare + Choice Member to a Participating
Hospital or other designated alternative is precluded because of risk
to the Medicare + Choice Member's health or because transfer would be
unreasonable given the distance involved in the transfer and the nature
of the medical condition.
The defined term "Member Agreement" set forth in the amendment dated
April 1, 1997 (which defined term superseded and replaced the defined term
Subscriber Agreement in the Agreement) is hereby superseded and replaced as
follows:
1.7 MEMBER AGREEMENT means the applicable written documents or evidence
of coverage that describes or summarizes the health services and
supplies and the conditions for coverage thereof when rendered to a
Medicare + Choice Member, including any amendments or endorsements to
such written documents.
The defined term "Exhibit" set forth in Section 1.8 of the Agreement is
hereby superseded and replaced as follows:
<PAGE>
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1.8 EXHIBIT(S) means Exhibits A-C to this Agreement, incorporated
herein by reference as if set forth in full.
The defined term "HCFA" set forth in Section 1.9 of the Agreement is
hereby superseded and replaced as follows:
1.9 HCFA means the Health Care Financing Administration.
The defined term "Medicare Risk Contract" set forth in Section 1.12 of
the Agreement is hereby superseded and replaced as follows:
1.12 MEDICARE CONTRACT means the applicable contract between Anthem
BC&BS and HCFA or between a member plan of the BlueCross BlueShield
Association and HCFA for the provision of medical services to Medicare
+ Choice Members.
The defined term "Member" or "Medicare Risk Plan Member" set forth in
Section 1.13 of the Agreement is hereby superseded and replaced as follows:
1.13 MEMBER or MEDICARE + CHOICE MEMBER means a person eligible for,
and enrolled under a Member Agreement in, a program or products offered
by Anthem BC&BS pursuant to a Medicare Contract and/or a program or
product offered by a member plan of the BlueCross Blue Shield
Association pursuant to a Medicare Contract and in which program or
product Anthem BC&BS participates.
The defined term "Participating Hospital" set forth in Section 1.14 of
the Agreement is hereby superseded and replaced as follows:
1.14 PARTICIPATING HOSPITAL means a hospital which is a Participating
Provider.
The defined term "Participating Provider" set forth in Section 1.15 of
the Agreement is hereby superseded and replaced as follows:
1.15 PARTICIPATING PROVIDER means any physician or other individual or
institutional health care provider who or which agrees to render or
arrange for services or supplies for which benefits are available under
the applicable Member Agreement, to comply with the requirements of
such Member Agreement and HCFA requirements applicable thereto, and to
accept negotiated or other binding fees as payment in full for Covered
Services rendered to Members and who is accepted by Anthem BC&BS as a
Participating Provider.
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The defined term "Plan" or "Medicare Risk Plan" set forth in Section
1.16 of the Agreement is hereby deleted.
The defined term "Primary Care Physician" set forth in Section 1.17 of
the Agreement is hereby superseded and replaced as follows:
1.17 PRIMARY CARE PHYSICIAN or PCP means a licensed physician who is a
Participating Provider practicing in the specialty of internal
medicine, pediatrics, family medicine or general practice to which
Medicare + Choice Members will have access without a referral. A
Primary Care Physician (a) provides initial and primary care services
to Medicare + Choice Members, (b) maintains the continuity of a
Medicare + Choice Member's medical care and (c) initiates and manages
referrals to other Participating Providers in accordance with
applicable law and/or the Provider Manual.
The defined term "Provider Manual" set forth in Section 1.18 of the
Agreement is hereby superseded and replaced as follows:
1.18 PROVIDER MANUAL means the manual and materials, including
Administrative Policies and Procedures, furnished to CONTRACTING
PROVIDER by Anthem BC&BS for use of the former during the term of this
Agreement, as amended and supplemented by Anthem BC&BS from time to
time. Anthem BC&BS retains the right to add to, delete from and
otherwise modify the Provider Manual from time to time.
There is hereby inserted a new defined term "Risk Population" between
Section 1.20 and Section 1.21, which definition reads as follows.
1.20A RISK POPULATION means those Medicare + Choice Members enrolled
under an Anthem BC&BS Member Agreement. Risk Population shall include
such Medicare + Choice Members when they are enrolled in the travel
component under an Anthem BC&BS Member Agreement, notwithstanding that
the Member is out of the Service Area.
The defined term "Service Area or Plan Service Area" set forth in the
amendment dated April 1, 1997 (which defined term superseded and replaced the
defined term Service Area or Plan Service Area in the Agreement) is hereby
superseded and replaced as follows:
1.21 SERVICE AREA means all counties in the State in which RCFA has
authorized Anthem BC&BS to enroll Medicare + Choice Members.
The defined term "Urgently Needed Services" set forth in Section 1.24
of the Agreement is hereby superseded and replaced as follows:
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1.24 URGENTLY NEEDED SERVICES means Covered Services (i) which are
provided when a Member is temporarily absent from the Service Area;
(ii) which are immediately required as a result of an unforeseen
illness, injury, or condition and (iii) with respect to which it is not
reasonable, given the circumstances, to obtain the services from a
Participating Provider in the Service Area.
3. Section 4.1 - CREDENTIALING REQUIREMENTS is hereby superseded and
replaced as follows:
4.1 CREDENTIALING REQUIREMENTS. In order to become a Represented
Provider, each provider must submit to Anthem BC&BS a Credentialing
Application. The Provider Credentialing Applications submitted by or on
behalf of each Represented Provider are expressly incorporated by
reference into this Agreement. CONTRACTING PROVIDER and each
Represented Provider represent and warrant that the information set
forth therein is true and correct. Anthem BC&BS's approval of a
Represented Provider's Credentialing application and its determination
of his/her compliance and CONTRACTING PROVIDER's compliance with Anthem
BC&BS's applicable standards, if any, as they may be amended by Anthem
BC&BS from time to time providing they are generally consistent with
National Committee for Quality Assurance (NCQA) standards. are
conditions precedent to this Agreement. CONTRACTING PROVIDER shall be
subject to, and CONTRACTING PROVIDER shall cooperate with,
Re-Credentialing on a periodic basis. Such processes include, but are
not limited to, medical records audits, office site surveys, patient
satisfaction surveys and physician practice profiling. Anthem BC&BS
shall determine in its sole discretion whether to approve Represented
Provider's continued participation upon Re-Credentialing. Such approval
may be conditioned upon compliance with specific limitations or
corrective actions.
Within thirty (30) business days of extending an offer to employ,
contract or associate with a provider, CONTRACTING PROVIDER shall
submit a Credentialing application to Anthem BC&BS consistent with this
Section 4.1 and this Agreement.
CONTRACTING PROVIDER shall notify Anthem BC&BS in writing within ten
(10) days of any material change in the information set forth in any
Represented Provider's Credentialing application or Re-Credentialing
application.
In no event shall such provider provide any Covered Services to
Members, including coverage of CONTRACTING PROVIDER, until such
provider is credentialed and certified by Anthem BC&BS, except as
Anthem BC&BS may otherwise direct.
4. Section 4.4 - DELEGATED CREDENTIALING/RECREDENTIALING is hereby added
and reads as follows:
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4.4 DELEGATED CREDENTIALING/RECREDENTIALING. Anthem BC&BS reserves the
right to require CONTRACTING PROVIDER to conduct Credentialing and/or
ReCredentialing upon ninety (90) days prior written notice to
CONTRACTING PROVIDER. CONTRACTING PROVIDER shall perform any such
Credentialing and ReCredentialing in compliance with Anthem BC&BS
requirements, the Act, the Medicare Contract, Anthem BC&BS
requirements, HCFA requirements, and otherwise in accordance with
accreditation standards related thereto of the National Committee for
Quality Assurance ("NCQA").
5. Section 5.0 - ACCOUNTABILITY is hereby added before Section 5.1 and
reads as follows:
5.0 ACCOUNTABILITY. All services, duties and responsibilities of
CONTRACTING PROVIDER under this Agreement shall be consistent and in
compliance with Anthem BC&BS's contractual obligations as set forth in
the Anthem BC&BS Medicare Contract.
6. Section 5.1 - HEALTH SERVICES is hereby superseded and replaced as
follows:
5.1 HEALTH SERVICES. CONTRACTING PROVIDER will provide or arrange to
provide Covered Services in accordance with this Agreement, the
applicable Member Agreement, the Medicare Contract and the Act.
CONTRACTING PROVIDER and Represented Providers are permitted and
encouraged to discuss treatment options and care alternatives with
Members, including information related to the coverage or non coverage
of such treatment options or care alternatives under the applicable
Member Agreement or under the program of another health maintenance or
insurance organization.
7. Section 5.1A - NETWORK MANAGEMENT SERVICES is hereby added after
Section 5.1 and reads as follows:
5.1A NETWORK MANAGEMENT SERVICES. Throughout the term of this
Agreement, CONTRACTING PROVIDER shall:
(a) Establish, maintain and administer a network of Represented
Providers in the State that are available to provide Covered Services
in accordance with this Agreement.
(b) Enter into Participating Provider agreements only with providers
that are accepted by Anthem BC&BS as Participating Providers.
(c) Monitor Represented Providers for their continued compliance with
all applicable Credentialing/ReCredentialing criteria and with the
Utilization/Quality Management Programs.
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(d) Maintain a sufficient number of Represented Providers to provide
(i) convenient access to Members, (ii) convenient hours of operation,
and (iii) convenient services. The determination of whether the
foregoing requirements are met shall be made by Anthem BC&BS, in its
business judgment and in accordance with the Act and the Medicare
Contract. In the event Anthem BC&BS determines that the CONTRACTING
PROVIDER Network does not meet the standards established by HCFA or
Anthem BC&BS from time to time, Anthem BC&BS shall notify CONTRACTING
PROVIDER of the specific aspects in which the CONTRACTING PROVIDER
Network fails to meet Anthem BC&BS's standards. CONTRACTING PROVIDER
shall have the right to bring the CONTRACTING PROVIDER network into
compliance with the standards set forth in Anthem BC&BS's notice within
sixty (60) days of CONTRACTING PROVIDER's receipt of such notice. If
not, Anthem BC&BS may, but shall not be obligated to, enter into
contracts with additional providers, or take such other steps as it
deems necessary or appropriate in its sole discretion to cure the
deficiencies described in its notice. Such additional providers shall
be considered to be Participating Providers for all purposes of this
Agreement.
(e) Require that all Represented Providers shall submit claims to
CONTRACTING PROVIDER in a timely fashion in evidence of services
rendered to Members. CONTRACTING PROVIDER shall require Represented
Providers to submit claims for payment of Covered Services either
electronically or in hard copy on HCFA red 1500 forms.
(f) Provide Anthem BC&BS with a listing of Represented Providers on the
Effective Date, and provide updates of changes, additions and deletions
to such listing as they occur and on a prospective basis only. In
addition, each month CONTRACTING PROVIDER will provide full file
refreshes of the listing of Represented Providers in a format that is
mutually acceptable to the parties.
(g) Maintain a toll-free telephone number to answer any appropriate
inquiries from Represented Providers and other Participating Providers.
(h) Communicate with Participating Providers concerning Member
complaints and other concerns identified by Anthem BC&BS. CONTRACTING
PROVIDER shall also notify any Represented Provider of his/her/its
termination as a Participating Provider by Anthem BC&BS.
Notwithstanding the foregoing, Anthem BC&BS retains the right to have
direct contact with Represented Providers concerning specified issues,
provided however, that Anthem BC&BS shall notify CONTRACTING PROVIDER
in advance of any contact by Anthem BC&BS with a Represented Provider
related to the quality of Covered Services rendered.
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(i) Promptly notify Anthem BC&BS of the name of any Represented
Provider that is determined to have committed fraud or other claims
abuses.
(j) Require each Represented Provider to abide by each and every term
of the Act, the Medicare Contract, the Member Agreement and this
Agreement that are applicable to Represented Providers, including
without limitation, the terms and provisions herein relating to holding
Anthem BC&BS and Members harmless from financial liability.
8. The following sentence is hereby added to the end of Section 5.2 -
PATIENT RIGHTS:
CONTRACTING PROVIDER shall ensure that represented providers make
public declarations of their commitment to nondiscriminatory behavior
in the treatment and care of Medicare + Choice Members, as required
under the Medicare Contract.
9. Section 5.4 - QUALITY OF CARE is hereby superseded and replaced as
follows:
5.4 QUALITY OF CARE. CONTRACTING PROVIDER agrees that health services
provided to Medicare + Choice Members shall be of a quality that is
consistent with accepted medical and surgical practices and otherwise
in compliance with professionally recognized standards of care.
10. The last sentence in the first paragraph of Section 5.7 - FACILITIES
AND STAFFING is hereby superseded and replaced as follows:
CONTRACTING PROVIDER hereby agrees to provide access to Anthem BC&BS,
HCFA and/or their designees during normal business hours to perform
such verification.
11. Section 5.8 - RECORDS is hereby superseded and replaced as follows:
5.8 RECORDS. CONTRACTING PROVIDER and its Represented Providers agree
to maintain adequate medical, financial, administrative and other
records for the period and in the manner specified by applicable law,
including without limitation, the Act, and in accordance with the
Medicare Contract and any standards established by Anthem BC&BS not
inconsistent with this Agreement. Anthem BC&BS and CONTRACTING PROVIDER
and its Represented Providers shall comply with all applicable federal
and state confidentiality and member record accuracy requirements.
CONTRACTING PROVIDER and its Represented Providers shall participate in
the transmission to, reporting to and requesting of information from
other treating and/or referring providers as necessary or appropriate
for the care, referral or transition of care of any Member.
12. Section 5.9 - REVIEW AND AUDIT is hereby superseded and replaced as
follows:
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5.9 REVIEW AND AUDIT. CONTRACTING PROVIDER agrees that, upon reasonable
notice, it shall make available to Anthem BC&BS for examination, audit
and copying, subject to applicable patient privacy laws, all books,
contracts, medical records, documents, papers, patient care
documentation, and other records related to Covered Services and such
other documents, as shall be requested by Anthem BC&BS. CONTRACTING
PROVIDER agrees to maintain, and to make available to Anthem BC&BS, and
its representatives and agents, all of such books, contracts, medical
records, documents, papers, patient care documentation and other
records for a period of at least six (6) fiscal years following the
close of the fiscal year in which the services were rendered. Anthem
BC&BS agrees to pay CONTRACTING PROVIDER copying charges not to exceed
the maximum Connecticut Peer Review Organization charge per page for
copies actually made by the CONTRACTING PROVIDER, or its designee, at
Anthem BC&BS's request plus postage.
Anthem BC&BS may take any action or actions, separately or in
combination, as Anthem BC&BS determines is warranted by the results of
any audit, including but not limited to: consultation with CONTRACTING
PROVIDER; withholding of payments to CONTRACTING PROVIDER, demand for
immediate payment of all sums determined to be owed by CONTRACTING
PROVIDER and the institution of action to collect such sums; reaudit;
the setoff of amounts owing by CONTRACTING PROVIDER from any future
payment(s) which would otherwise be due to CONTRACTING PROVIDER under
this Agreement; and/or the suspension or termination of this Agreement.
Pursuant to the Act, the Secretary of Health and Human Services
("HHS"), the Comptroller General, or their designee(s), including, but
not limited to, peer review organizations, external quality review
organizations, or other authorized government agencies, may audit,
evaluate or inspect any books, contracts, medical records, documents,
papers, patient care documentation, and other records of CONTRACTING
PROVIDER that pertain to any aspect of services performed,
reconciliation of benefit liabilities, and determination of amounts
payable under this Agreement, or as the Secretary may deem necessary to
enforce the Medicare Contract. CONTRACTING PROVIDER shall provide such
books, contracts, medical records, documents, papers, patient care
documentation, and other records subject to applicable federal law and
in accordance with regulations governing such access.
HHS, the Comptroller General, or their designees' right to inspect,
evaluate, and audit extends through six (6) years from the final date
of the contract period or completion of audit, whichever is later
unless: (i) HCFA determines there is a special need to retain a
particular record or group of records for a longer period and provides
notice at least thirty (30) days before the normal disposition date;
(ii) there has been a termination, dispute, or fraud or similar fault
by CONTRACTING PROVIDER or Anthem BC&BS, in which
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case the retention may be extended to six (6) years from the date of
any resulting final resolution of the termination, dispute, or fraud or
similar fault; or (iii) HHS, the Comptroller General, or their designee
determine that there is a reasonable possibility of fraud, in which
case they may inspect, evaluate, and audit CONTRACTING PROVIDER at any
time.
If CONTRACTING PROVIDER performs any of its obligations under this
Agreement through subcontract, the subcontract shall contain this same
clause. If it is determined that this Agreement does not fall within
the scope of the Act, this Section shall be null and void. The
provisions of this Sections shall be applicable to Represented
Providers to the same extent applicable to CONTRACTING PROVIDER. The
provisions of this Section shall survive the termination for any reason
of this Agreement.
13. Section 5.11 - GRIEVANCE SYSTEM is hereby superseded and replaced as
follows:
5.11 MEMBER GRIEVANCE/APPEALS. Anthem BC&BS will maintain and
administer a grievance/appeal system for Medicare + Choice Members.
Complaints received by Anthem BC&BS concerning services rendered by
CONTRACTING PROVIDER and its Represented Providers will be resolved in
accordance with the applicable grievance/appeal procedures. CONTRACTING
PROVIDER agrees and shall require its Represented Providers to agree to
notify Anthem BC&BS immediately of any member complaints that come to
its/their attention. CONTRACTING PROVIDER and its Represented Providers
shall adhere to the appeals/expedited appeals procedures as set forth
in the Provider Manual and the Act, including providing information
required by Anthem BC&BS for the appeal, and shall further cooperate
with Anthem BC&BS in the resolution of Medicare + Choice Member
complaints and be bound by such resolutions.
14. Section 5.12 - INDEMNIFICATION is hereby superseded and replaced as
follows:
5.12 INDEMNIFICATION. CONTRACTING PROVIDER shall indemnify and hold
Anthem BC&BS, including its officers, directors, employees,
representatives and agents harmless from and against any and all losses
and damages (including any sanctions attributable or allocable to
CONTRACTING PROVIDER on account of any performance failure and
reasonable attorneys' fees) resulting from the alleged neglect, breach
of contract or other negligent act or omission of CONTRACTING PROVIDER,
its officers, directors, employees, representatives or agents (but not
medical staff members who are independent contractors) relating in any
way to the performance or omission of any negligent act or
responsibility of CONTRACTING PROVIDER under this Agreement.
15. Section 5.14 - CONTRACTING PROVIDER'S SERVICE STANDARDS is hereby added
and reads as follows:
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5.14 CONTRACTING PROVIDER'S SERVICE STANDARDS. Unless a higher standard
is set forth herein, CONTRACTING PROVIDER shall perform its duties
hereunder in accordance with applicable Medicare laws, regulations and
HCFA instructions and all other applicable federal, state and local
laws, regulations and requirements.
16. Section 5.15 - REPORTS AND REPORTING is hereby added and reads as
follows:
5.15 REPORTS AND REPORTING. (a) CONTRACTING PROVIDER shall issue to
Anthem BC&BS, at CONTRACTING PROVIDER's expense, such reports related
to CONTRACTING PROVIDER's and Represented Providers' services under
this Agreement, as Anthem BC&BS requests, including those reports set
forth on Exhibit C hereto. All reports shall be in a form and of
content and frequency as Anthem BC&BS and CONTRACTING PROVIDER shall
agree, but at a minimum shall meet any criteria that Anthem BC&BS
determines are applicable pursuant to the Act, the Medicare Contract,
HCFA requirements or other requirements that are generally accepted in
the managed care industry as applicable to reports and reporting
(including, without limitation, HEDIS, NCQA and NMIS).
(b) CONTRACTING PROVIDER agrees to furnish to Anthem BC&BS either (i)
an audited balance sheet, including the management letter, and related
statements of income, retained earnings and changes in consolidated
financial position for CONTRACTING PROVIDER as of the and for each
fiscal year end during the term of this Agreement, with an unqualified
report thereon by CONTRACTING PROVIDER's independent public
accountants; or, if audited sheets are not prepared, (ii) an unaudited
balance sheet and related statements of income, retained earnings and
changes in financial position for CONTRACTING PROVIDER as of and for
the each fiscal year end during the term of this Agreement, certified
by the principal financial officer of CONTRACTING PROVIDER. In
addition, CONTRACTING PROVIDER shall represent that, except as
otherwise disclosed in writing to Anthem BC&BS: (i) since the date of
the financial statements (the "Financial Statements"), there has been
no material adverse change in the financial condition, business,
operations or properties of CONTRACTING PROVIDER; (ii) all such
Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied; (iii) the
Financial Statements fairly present the financial position of
CONTRACTING PROVIDER as of the dates thereof and the results of its
operations and cash flows for the period ended on the dates thereof;
(iv) the Financial Statements reflect reserves appropriate and adequate
for all known material liabilities and reasonably anticipated losses,
as required by generally accepted accounting principles; (v) since the
date of the Financial Statement, there has been no change in the
assets, liabilities or financial condition of CONTRACTING PROVIDER from
that reflected therein except for changes in the ordinary course of
business consistent with past practice and which have not been
materially adverse; and (vi) none of the business,
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prospects, financial condition, operations, property or affairs of
CONTRACTING PROVIDER has been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether or
not insured against.
17. Section 6.2 - COMPLIANCE WITH REFERRAL SYSTEM is hereby superseded and
replaced as follows:
6.2 COMPLIANCE WITH REFERRAL SYSTEM. CONTRACTING PROVIDER and its
Represented Providers shall comply with Anthem BC&BS's referral
policies, including, but not limited to, policies regarding the
transmission to, reporting to and requesting of information from other
treating and/or referring providers as necessary or appropriate for the
care, referral or transition of care of any Medicare + Choice Member.
As mandated by HCFA, CONTRACTING PROVIDER and its Represented Providers
shall provide Medicare + Choice Members direct access without referral
to (i) mammography screening, (ii) influenza vaccinations, and (iii) to
Participating Providers who are women's health specialists for routine
and preventive Covered Services. CONTRACTING PROVIDER and its
Represented Providers shall not provide non Emergency Services, other
than those referred to herein, to any Medicare + Choice Member referred
to it/him/her unless such services are within the scope of the referral
authorization.
18. Section 5.16 - BLUE CROSS AND BLUE SHIELD ASSOCIATION is hereby added
and reads as follows:
5.16 BLUE CROSS AND BLUE SHIELD ASSOCIATION. CONTRACTING PROVIDER
acknowledges its understanding that this Agreement constitutes a
contract between CONTRACTING PROVIDER and Anthem BC&BS and that Anthem
BC&BS is an independent corporation operating under a license with the
Blue Cross and Blue Shield Association, an association of independent
Blue Cross and Blue Shield Plans (the "Association"), permitting Anthem
BC&BS to use the Blue Cross and/or Blue Shield Service Mark in the
State, and that Anthem BC&BS is not contracting as the agent of the
Association. CONTRACTING PROVIDER further acknowledges and agrees that
it has not entered into this Agreement based upon representations by
any other person, entity, or organization other than Anthem BC&BS and
that no person, entity, or organization other than Anthem BC&BS will be
held accountable or liable to CONTRACTING PROVIDER for any obligations
created under this Agreement. This Section 5.16 will not create any
additional obligations whatsoever on the part of Anthem BC&BS other
than those obligations created under other provisions of the Agreement.
19. Section 7.1 - COOPERATION is hereby superseded and replaced as follows:
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7.1 COMPLIANCE. CONTRACTING PROVIDER shall comply with the
Utilization/Quality Management Programs including, but not limited to,
prescription drug benefit management, laboratory service management,
site surveys, case management and discharge planning and utilization
review procedures (prospective, concurrent and retrospective) for
determining medical necessity. CONTRACTING PROVIDER acknowledges that
the Anthem BC&BS Medicare Contract and the Act requires Anthem BC&BS
and CONTRACTING PROVIDER to comply with Quality Improvement System for
Managed Care ("QISMC") Standards. CONTRACTING PROVIDER and its
Represented Providers agree to comply with the QISMC Standards
applicable to them and to notify Anthem BC&BS promptly of any
information known to CONTRACTING PROVIDER or its Represented Providers
that leads them to believe that QISMC Standards are not being complied
with, whether by CONTRACTING PROVIDER, a Represented Provider or Anthem
BC&BS or by any other person or entity.
20. Section 7.2 - REVIEW PROCESS is hereby added and reads as follows:
7.2 REVIEW PROCESS. Review of CONTRACTING PROVIDER's and Represented
Providers' services to Medicare Members may be conducted by a physician
review committee, by Anthem BC&BS staff, HCFA or by others designated
by Anthem BC&BS or HCFA. Such review may determine that some services
or patterns of care rendered to Medicare Members were not in accordance
with accepted standards of care, QISMC Standards, Utilization/Quality
Management Program or Anthem BC&BS's referral policies. CONTRACTING
PROVIDER and its Represented Providers shall abide by the decision of
Anthem BC&BS under the Utilization/Quality Management Program, and peer
review, subject to a right to appeal under Article 11. In the event
that the functions or responsibilities with respect to
Utilization/Quality Management Programs under this Agreement are
delegated or assigned, either in whole or in part, Anthem BC&BS shall
oversee, monitor and modify programs as necessary or required in order
to fulfill the purposes of this Agreement and Anthem BC&BS Medicare
Contract, notwithstanding such assignment or delegation.
21. Section 7.3 - DELEGATION OF UTILIZATION/QUALITY MANAGEMENT is hereby
added and reads as follows:
7.3 DELEGATION. Anthem BC&BS reserves the right to require CONTRACTING
PROVIDER to conduct utilization management and/or quality assurance
review upon ninety (90) days prior written notice to CONTRACTING
PROVIDER. Such activities shall be conducted in compliance with the
Act, the Medicare Contract, QISMC Standards, Anthem BC&BS requirements,
HCFA requirements, Anthem BC&BS' oversight and otherwise in accordance
with NCQA accreditation standards related thereto.
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22. The following sentence is hereby added to the end of Section 8.1 -
MEMBER BILLING PROHIBITION:
In accordance with the Act, CONTRACTING PROVIDER and its Represented
Providers shall not bill, charge, or collect Copayments from a Medicare
+ Choice Member or persons acting on behalf of a Medicare + Choice
Member for influenza vaccines or pneumoccal vaccines provided pursuant
to this Agreement.
23. Section 8.5 - DELEGATION OF CLAIMS PROCESSING AND PAYMENT is hereby
added and reads as follows:
8.5 DELEGATION OF CLAIMS PROCESSING AND PAYMENT. (a) Upon the Amendment
Effective Date CONTRACTING PROVIDER will conduct the claims processing
and payment functions. CONTRACTING PROVIDER acknowledges that the
claims processing and payment functions are critical aspects of its
performance under the Agreement and agrees that Anthem BC&BS shall have
oversight and supervision of CONTRACTING PROVIDER's performance of such
functions. If, at any time, Anthem BC&BS and/or HCFA determines that
CONTRACTING PROVIDER is not satisfactorily performing its
responsibilities hereunder or does not have appropriate capability to
perform the claims processing and payment functions then Anthem BC&BS
shall have the right to conduct the claims processing and payment
function as agent for CONTRACTING PROVIDER. Upon such event,
CONTRACTING PROVIDER shall cooperate fully with Anthem BC&BS to
transition such functions to Anthem BC&BS in a manner that causes no
disruption to Covered Services for Members.
(b) During any period during which CONTRACTING PROVIDER is responsible
for the claims processing and payment functions, CONTRACTING PROVIDER
shall require Represented Providers to use their best efforts to submit
any claim or encounter to CONTRACTING PROVIDER for payment or benefits
applicable to the rendering of Covered Services to a Member within
thirty (30) days from the end of the month in which Represented
Providers renders such services. In no event, regardless of the cause
or circumstance, shall Anthem BC&BS or the Member be responsible for or
liable for any claim submitted to CONTRACTING PROVIDER more than ninety
(90) days after the date of Represented Provider's provision of the
Covered Services. Notwithstanding the foregoing, if Anthem BC&BS is the
secondary payor under applicable nonduplication of benefits rules, then
CONTRACTING PROVIDER shall require its Represented Providers to submit
the claim or encounter no later than the earlier of ninety (90) days
after payment by the primary payor or one hundred eighty (180) days
after the Member's discharge.
(c) For any period during which CONTRACTING PROVIDER is responsible for
the claims processing and payment functions, CONTRACTING PROVIDER shall
pay all
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amounts due to Represented Providers for Capitated Services in
accordance with Exhibit A hereto.
CONTRACTING PROVIDER agrees to pay all "Clean Claims" (defined herein)
submitted by Represented Providers for payment of Capitated Services
within sixty (60) days of receipt of such Clean Claims. A "Clean Claim"
is a claim that has no defect, impropriety, lack of any required
substantiating documentation, or particular circumstance requiring
special treatment that prevents timely payment. CONTRACTING PROVIDER
agrees to deny all Non Clean Claims within sixty (60) days of receipt
of such Non Clean Claims. CONTRACTING PROVIDER expressly acknowledges
that its failure to pay or deny claims submitted by Represented
Providers in a timely fashion may adversely affect Anthem BC&BS's
compensation from HCFA under the Anthem BC&BS Medicare Contract.
(d) For any period during which CONTRACTING PROVIDER is responsible for
the claims processing and payment functions, CONTRACTING PROVIDER shall
submit all billings and/or encounter information required under this
Agreement in accordance with this Agreement, the Administrative
Policies and Procedures or otherwise as reasonably required by Anthem
BC&BS. CONTRACTING PROVIDER shall submit such billing and/or encounter
information no later than the fifteenth (15th) day of the month
following the month in which CONTRACTING PROVIDER receives the billing
and/or encounter information from the Represented Provider. To the
extent required under the Act or the Medicare Contract, CONTRACTING
PROVIDER agrees to and will require Represented Providers to agree to
certify the accuracy, completeness and truthfulness of encounter and
claims data.
(e) CONTRACTING PROVIDER agrees that in the event that CONTRACTING
PROVIDER is required to allocate its resources among its customers as a
result of a claims processing system failure or a lack of system
capacity, Anthem BC&BS shall be afforded the highest priority for the
processing of its business.
24. The following sentence is hereby added to Section 9.1 - COMPENSATION
FOR COVERED SERVICES:
All payments, except for Copayments, received by CONTRACTING PROVIDER
as compensation under this Agreement are from federal funds. As such,
CONTRACTING PROVIDER is subject to all federal laws applicable to
individuals and entities receiving federal funds.
25. Section 9.3 - PERFORMANCE GUARANTEE is hereby added and reads as
follows:
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9.3 PERFORMANCE GUARANTEE. CONTRACTING PROVIDER agrees that if it fails
or refuses to provide to Anthem BC&BS any of the reports, data,
surveys, encounters, records, studies, findings, analyses,
methodologies, measurements or other information required under this
Agreement or if CONTRACTING PROVIDER fails to meet any performance
criteria, standard or requirement as set forth in this Agreement,
excluding the Development of Quality Standards, as determined by Anthem
BC&BS and/or HCFA, then Anthem BC&BS may withhold, for the period of
CONTRACTING PROVIDER's failure or refusal, up to fifty percent (50%) of
the compensation then due and payable to CONTRACTING PROVIDER, provided
that Anthem BC&BS shall notify CONTRACTING PROVIDER, prior to
withholding compensation, of the grounds for withholding the
compensation. Upon CONTRACTING PROVIDER's performance in accordance
with this Agreement or otherwise to Anthem BC&BS's and HCFA's
reasonable satisfaction, Anthem BC&BS shall pay to CONTRACTING PROVIDER
the withheld amount, without interest. CONTRACTING PROVIDER expressly
acknowledges that its failure (i) to perform any or all of its
services, duties and responsibilities under this Agreement to the
satisfaction of Anthem BC&BS and/or HCFA, or (ii) to meet any
performance criteria, standard or requirement as set forth in this
Agreement may adversely affect Anthem BC&BS's compensation from, and/or
result in sanctions by, HCFA under the Anthem BC&BS Medicare Contract.
CONTRACTING PROVIDER agrees that it will pay, within thirty (30) days
of demand by Anthem BC&BS, the amount of penalty or sanction assessed
by HCFA that Anthem BC&BS determines is attributable to the failure of
CONTRACTING PROVIDER's performance under this Agreement. If CONTRACTING
PROVIDER disputes such determination in any respect, then it must
notify Anthem BC&BS in writing of such dispute not more than ten (10)
days from receipt of Anthem BC&BS's demand. CONTRACTING PROVIDER's
dispute must state with specificity the basis for the dispute. If the
parties are unable to reach agreement with respect to the matter within
thirty (30) days of CONTRACTING PROVIDER's notice of dispute, then the
matter shall be resolved pursuant to the provisions of Article 11.
26. Section 10.3 - TERMINATION OF AGREEMENT BY BC&BS is hereby superseded
and replaced as follows:
10.3 TERMINATION BY ANTHEM BC&BS. (a) Anthem BC&BS shall have the right
to terminate this Agreement upon thirty (30) days written notice to
CONTRACTING PROVIDER upon the occurrence of any of the following:
(i) Failure of CONTRACTING PROVIDER, as determined by Anthem
BC&BS or HCFA, to comply with Utilization/Quality Management
Programs, with Anthem BC&BS's availability, staffing, or
accessibility
<PAGE>
-17-
standards or financial standards, with any requirement
prohibiting CONTRACTING PROVIDER or Represented Providers
from billing Medicare + Choice Members, or with any
performance criteria, standard or requirement as set forth in
this Agreement, the Provider Manual, the Member Agreement,
the Medicare Contract or the Act, or failure of CONTRACTING
PROVIDER to meet any Credentialing or ReCredentialing
criteria, provided that Anthem BC&BS notifies CONTRACTING
PROVIDER of the deficiencies and, after the expiration of
thirty (30) days from such notice, Anthem BC&BS determines
that CONTRACTING PROVIDER is unable, unwilling or has failed
to correct the deficiencies;
(ii) Anthem BC&BS is unable to maintain agreements with hospitals,
physicians, and ancillary service providers who collectively
constitute a service delivery system.
(b) This Agreement may be terminated or suspended by Anthem BC&BS
immediately upon notice to CONTRACTING PROVIDER, if
CONTRACTING PROVIDER's license under State law is revoked, if
CONTRACTING PROVIDER loses his/her/its certification under
Title XVIII or Title XIX, or if CONTRACTING PROVIDER's
continuation as a Participating Provider poses risk of harm to
the health or safety of any Medicare + Choice Member.
27. Section l0.4A - TERMINATION OR SUSPENSION OF REPRESENTED PROVIDER is
hereby added between Section 10.4 and Section 10.5 and reads as follows:
l0.4A TERMINATION OR SUSPENSION OF REPRESENTED PROVIDER.
(a) For Cause. Anthem BC&BS may require CONTRACTING PROVIDER to
terminate or suspend the participation of any Represented Provider for
cause, such termination or suspension to be effective immediately upon
notice to CONTRACTING PROVIDER, unless Anthem BC&BS specifies a later
date or unless otherwise provided by applicable law. Cause for
termination or suspension includes, but is not limited to, the
following:
(i) a Represented Provider's conviction of a felony or
misdemeanor of moral turpitude;
(ii) loss or suspension of any license required to fulfill
this Agreement;
(iii) professional incompetence of a Represented Provider,
non-cooperation with Anthem BC&BS policy or nonperformance of
professional responsibility;
<PAGE>
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(iv) impairment of Represented Provider's ability to practice
his or her profession in a competent manner;
(v) a Represented Provider's being a party to professional
liability or other litigation or arbitration that has resulted
in substantial judgments, settlements or awards against the
Represented Provider or Contracting Provider;
(vi) a Represented Provider having had his/her staff
privileges restricted, suspended or terminated, and/or having
had any policy of insurance required under this Agreement
reduced, terminated or canceled;
(vii) a Represented Provider posing a significant risk of harm
to the health or safety of any Member;
(viii) a Represented Provider's being sanctioned, suspended or
terminated from, or a Represented Provider's voluntary
surrendering from, participation in the Medicare (Title XVIII)
or Medicaid (Title XIX) programs; or
(ix) a Represented Provider's failure to meet any
Credentialing or Re- Credentialing criteria.
(b) Without Cause. Anthem BC&BS may terminate or suspend or require
CONTRACTING PROVIDER to terminate or suspend the participation of any
Represented Provider at any time without cause or prejudice upon sixty
(60) days' prior written notice to Represented Provider.
28. Section 10.5 - EFFECT OF TERMINATION is hereby superseded and replaced
as follows:
10.5 EFFECT OF TERMINATION. If Anthem BC&BS becomes insolvent, then
CONTRACTING PROVIDER and its Represented Providers agree to continue to
provide services to any Member who is an inpatient until the Member's
discharge. In the event this Agreement is terminated for reasons other
than Anthem BC&BS insolvency, regardless of such other circumstances of
termination, CONTRACTING PROVIDER agrees to serve Medicare + Choice
Members through the last day this Agreement is in effect.
Notwithstanding the foregoing, Medicare + Choice Members who are
inpatients may, at Anthem BC&BS's election, continue after termination
of this Agreement as patients of CONTRACTING PROVIDER until the date of
the Member's discharge or other arrangements can be made or until the
Anthem BC&BS Medicare + Choice program terminates, whichever is first.
During such period, CONTRACTING PROVIDER shall be paid in accordance
with the terms of the reciprocal rate schedule in EXHIBIT A -
Compensation Schedule and shall cooperate with Anthem BC&BS's policies
<PAGE>
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and procedures in relation to those Medicare + Choice Members.
Termination of this Agreement, except as provided herein to the
contrary, shall not affect the rights, obligations and liabilities of
the parties arising out of transactions occurring prior to termination.
CONTRACTING PROVIDER shall, upon request of Anthem BC&BS, provide to
Anthem BC&BS or such Participating Provider as is designated by Anthem
BC&BS, copies of Medicare + Choice Member medical records and all
records necessary for the settlement of outstanding medical bills.
Anthem BC&BS reserves the right to transfer, if feasible and medically
appropriate, those Medicare + Choice Members being treated by
CONTRACTING PROVIDER to another Participating Provider once notice of
the termination of this Agreement is provided.
29. Section 10.6 - COMPENSATION FOR SERVICES IMMEDIATELY AFTER NOTICE TO
MEMBER OF CONTRACTING PROVIDER'S TERMINATION is hereby deleted.
30. Section 10.7 - CESSATION OF BC&BS OPERATIONS is hereby renumbered as
Section 10.6 and is superseded and replaced as follows:
10.6 SERVICE AREA REDUCTION OR TERMINATION OF ANTHEM BC&BS'S MEDICARE
CONTRACT. If Anthem BC&BS, or its successors and assigns, reduces its
Service Area or terminates its Medicare Contract, then CONTRACTING
PROVIDER agrees to provide Covered Services to Medicare + Choice
Members until the last day of the last month in which Anthem BC&BS
continues its Medicare + Choice program without the Service Area
reduction or the termination date of the Medicare Contract; provided,
however, that if a Medicare + Choice Member is still hospitalized on
either of such dates, then until the Medicare + Choice Member is
discharged from the CONTRACTING PROVIDER.
31. Section 10.8 - BANKRUPTCY is hereby deleted.
32. Section 10.9 - ADVERSE GOVERNMENTAL ACTION is hereby renumbered as
Section 10.7.
33. Section 10.8 - REPRESENTED PROVIDER SUBSTITUTION INTO AGREEMENT is
hereby added and reads as follows:
10.8 REPRESENTED PROVIDER SUBSTITUTION INTO AGREEMENT. CONTRACTING
PROVIDER shall require that its Represented Providers agree to be
bound, at Anthem BC&BS's option, to the terms and conditions of this
Agreement in the event of dissolution or insolvency of CONTRACTING
PROVIDER or in the event of termination by Anthem BC&BS for breach as
described in this Article 10. Represented Providers' obligations under
this provision shall continue through the last day of the initial term
of the Agreement. In case of such dissolution, insolvency or
termination, Anthem BC&BS may, at its option, assume the administrative
rights and responsibilities of
<PAGE>
-20-
CONTRACTING PROVIDER described herein. This Paragraph is intended to
ensure continuity of care to Members in the event of such dissolution,
insolvency or termination.
34. Section 12.0 is hereby added and reads as follows:
12.0 Anthem BC&BS oversees and is accountable to HCFA for all functions
and responsibilities described in this Agreement and the Anthem BC&BS
Medicare Contract. In accordance with the Anthem BC&BS Medicare
Contract, Anthem BC&BS monitors the performance of CONTRACTING PROVIDER
under this Agreement on an ongoing basis.
35. Sections 12.1 through 12.6, inclusive, are hereby superseded and
replaced as follows:
12.1 Anthem BC&BS shall provide necessary and appropriate marketing,
administrative, data reporting, claims processing, Utilization/Quality
Management Programs, Member appeals and reconsideration and
underwriting functions that are required under the Anthem BC&BS
Medicare Contract and applicable laws and regulations related thereto.
Anthem BC&BS shall have the responsibility of all payments as further
defined in this Agreement and EXHIBIT A - Compensation Schedule hereto.
12.2 Anthem BC&BS shall arrange for health care services for Medicare +
Choice Members in accordance with the Medicare Contract.
12.3 Anthem BC&BS shall furnish CONTRACTING PROVIDER with a means of
identifying those Medicare + Choice Members who are covered under an
Anthem BC&BS Member Agreement. Medicare + Choice Members must be
certified by HCFA as eligible to receive services under this Agreement.
12.4 Anthem BC&BS shall have sole responsibility for the advertising
and marketing of its Medicare + Choice programs. CONTRACTING PROVIDER
will not advertise its participation as a Participating Provider
without the prior written approval of Anthem BC&BS. Anthem BC&BS shall
review any such advertisement within thirty (30) days of CONTRACTING
PROVIDER's submission to Anthem BC&BS.
12.5 Anthem BC&BS shall monitor the quality of health care provided to
Medicare + Choice Members in accordance with all applicable legal
requirements.
12.6 Anthem BC&BS shall use best efforts to ensure that only
individuals who meet the eligibility requirements stated in this
Agreement, the Medicare Contract, the Act or
<PAGE>
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HCFA regulations may be enrolled as Medicare + Choice Members.
Individuals must meet the following conditions for enrollment:
(a) The individual must be entitled to Medicare Part A and
Part B, or Part B only benefits, and must pay any applicable
premium;
(b) The individual must reside within the Service Area;
(c) At the time of enrollment, the individual must not have
been medically determined to have End Stage Renal Disease
(ESRD) except where the individual is a current Anthem BC&BS
group member and is converting to enrollment under an Anthem
BC&BS Member Agreement.
36. Section 13.4 - ASSIGNMENT is hereby superseded and replaced as follows:
13.4 ASSIGNMENT AND SUBCONTRACTS. No assignment, delegation or
subcontract, in whole or in, part, of all or any portion of this
Agreement or any of the rights, duties or obligations contained herein
shall be made by either party without the prior written consent of the
non-assigning, non-delegating or non-subcontracting party; provided
however, notwithstanding the foregoing, Anthem BC&BS shall be entitled
to assign, delegate or subcontract this Agreement, or any portion
thereof, or any of its rights, duties or obligations contained in this
Agreement (i) in the ordinary course of its business; or (ii) to any
entity which has the right to use the Blue Cross and/or Blue Shield
service marks or trade names in connection with any service performed
by such entity, whether that entity be a member, licensee or affiliate
of the Blue Cross and Blue Shield Association. Any attempted
assignment, delegation or subcontracting in violation of this provision
shall be void and have no binding effect.
37. The following sentence is added to the end of Section 13.8 - APPLICABLE
LAW:
Anthem BC&BS, CONTRACTING PROVIDER and its Represented Providers shall
comply with applicable Medicare laws, regulations and HCFA
instructions.
38. Appendix A to the Agreement is superseded and replaced with Revised
Appendix A, attached hereto and incorporated herein.
39. Exhibit A to the Agreement is superseded and replaced with Revised
Exhibit A, attached hereto and incorporated herein.
40. A new Exhibit C to the Agreement is added to the Agreement, attached
hereto and incorporated herein.
<PAGE>
-22-
41. The parties hereto acknowledge that on August 1, 1997, BC&BS merged
with and into Anthem Insurance Companies, Inc. ("ANTHEM") and prior
thereto, BC&BS assigned all of its rights and assets to Anthem BC&BS
and Anthem BC&BS assumed all the liabilities and obligations of BC&BS,
including without limitation the rights and obligations set forth in
the Agreement and this Amendment. It is the intent of the parties
hereto that the Agreement and this Amendment shall govern and control
the relationship that existed between BC&BS and CONTRACTING PROVIDER
from and after the Amendment Effective Date, notwithstanding the fact
that this Amendment is executed by the parties hereto on the date
indicated below. CONTRACTING PROVIDER further releases and discharges
BC&BS and ANTHEM from any and all claims that may now or hereafter
exist with respect to the Agreement and this Amendment and CONTRACTING
PROVIDER shall look solely to Anthem BC&BS for performance of its
obligations hereunder.
42. Except as set forth in this Amendment, the Agreement and all prior
amendments remains in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
Amendment Effective Date.
ANTHEM HEALTH PLANS, INC. OPTICARE EYE HEALTH CENTERS, INC.
/s/ Stephen B. Arntsen /s/ Steven L. Ditman
- ------------------------------------ -----------------------------------
(Signature) (Signature)
Stephen B. Arntsen Steven L. Ditman
- ------------------------------------ -----------------------------------
Name (type or print) Name (type or print)
Title: V.P. Provider Relations Title: Treasurer
----------------------------- ----------------------------
Date: 4/12/99 Date: 4/8/99
------------------------------ ----------------------------
<PAGE>
LEASE EXTENSION AGREEMENT
THIS LEASE EXTENSION AGREEMENT (the "Lease Extension") dated as of the
12th day of December, 1997 by and between CROSS STREET MEDICAL BUILDING, L.L.C.,
a Connecticut Limited Liability Company as successor to Cross Street Medical
Building Partnership having an address at 40 Cross Street, Norwalk, Connecticut
(the "Landlord") and OPTICARE EYE HEALTH CENTER, INC., as successor to Opticare
Eye Health Center, P.C.- Norwalk, having an office at 40 Cross Street, Norwalk,
Connecticut (the "Tenant").
WHEREAS, the Landlord entered into a lease with the Tenant dated
September 22, 1987 for certain space located on the first floor in the building
known as 40 Cross Street, Norwalk, Connecticut (the "Lease") which Lease was
amended by a First Lease Modification Agreement dated as of the 1st day of
October, 1993 (the "First Modification"); and
WHEREAS, the Landlord and Tenant desire to extend the term of said
Lease until February 28, 2004, and to set an agreed rental for the extended term
of the Lease, all in accordance with the terms and conditions of the Lease and
the First Modification.
Unless otherwise defined in this Lease Extension, capitalized terms and
other defined terms shall have the meaning ascribed to such terms as those set
forth in the Lease and the First Modification.
NOW THEREFORE in consideration of Ten and 00/100 ($10.00) Dollars and
other good and valuable consideration, the receipt of which is hereby
acknowledged, and in consideration of the mutual covenants contained herein, the
parties agree that the Lease shall be modified and amended as follows:
1. Section 2.2. The Tenant hereby exercises its option to extend the
Term of the Lease for the Lease Premises for one (1) additional three (3) year
Terms commencing on March 1, 1998 and ending on February 28, 2001. Tenant shall
have an option remaining to extend the term of the Lease for two (2) additional
three (3) year terms.
2. Section 4.2(b). The Net Annual Rent payable during each extended
term shall be equal to Twenty-four and 50/100 ($24.50) Dollars per rentable
square foot of the Lease Premises or Four Hundred Twenty Seven Thousand Five
Hundred Ninety Eight and 50/100 ($427,598.50) Dollars, subject to the adjustment
pursuant to Section 5.1 of the Lease.
3. Except as expressly provided for in this Lease Extension, Landlord
and Tenant hereby ratify and confirm all of the terms and conditions and the
Lease and the First Modification. Unless said terms and conditions are expressly
modified by the terms and
<PAGE>
conditions of this Lease Extension, such terms and conditions shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereunto have set their hands and seals
the day and year first above written.
WITNESSES: LANDLORD:
CROSS STREET MEDICAL
BUILDING, L.L.C.
/s/ By /s/
------------------------- ---------------------------
/s/
------------------------- ---------------------------
TENANT:
OPTICARE EYE HEALTH CENTER,
INC.
/s/ By /s/ Steven Ditman
-------------------------- ---------------------------
Steven Ditman
Treasurer
/s/
--------------------------
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<PAGE>
LEASE
CROSS STREET MEDICAL BUILDING PARTNERSHIP
LANDLORD
AND
OPHTHALMIC PHYSICIANS AND SURGEONS, P.C.
TENANT
FIRST FLOOR
40 CROSS STREET
NORWALK, CONNECTICUT
-3-
<PAGE>
TABLE OF CONTENTS
ARTICLE NUMBER TITLE PAGE NUMBER
I PREMISES...............................................1
II TERM...................................................1
III USE OF PREMISES........................................2
IV RENTAL.................................................2
V ADDITIONAL RENT........................................4
VI TENANT'S IMPROVEMENTS AND ALTERATIONS..................9
VII COMPLIANCE WITH INSURANCE REQUIREMENTS................10
VIII COMPLIANCE WITH LAW...................................10
IX SERVICES..............................................11
X LIABILITY INSURANCE...................................12
XI LIABILITY OF LANDLORD.................................12
XII REPAIRS...............................................13
XIII DESTRUCTION, FIRE OR OTHER CAUSES.....................13
XIV EMINENT DOMAIN........................................14
XV ASSIGNMENT, MORTGAGE, ETC.............................14
XVI DEFAULT...............................................15
XVII REMEDIES OF LANDLORD..................................17
XVIII RULES AND REGULATIONS.................................18
XIX NO REPRESENTATIONS BY LANDLORD........................19
XX QUIET ENJOYMENT.......................................19
XXI VARIOUS COVENANTS.....................................19
XXII SUBORDINATION.........................................20
XXIII SURRENDER OF THE PREMISES.............................20
XXIV ARBITRATION...........................................21
XXV FORCE MAJEURE.........................................21
XXVI LEASE STATUS..........................................22
XXVII NO BROKER.............................................22
XXVIII HOLDOVER..............................................22
<PAGE>
XXIX NOTICES...............................................23
XXX CHANGES OR ALTERATIONS BY LANDLORD....................23
XXXI RIGHT OF MORTGAGEE TO CURE DEFAULTS OF
LANDLORD..............................................24
XXXII ENTIRE AGREEMENT, ETC.................................24
XXXIII ASSIGNS...............................................24
XXXIV DEFINITIONS...........................................24
XXXV SECURITY DEPOSIT......................................25
XXXVI ACCIDENTS TO PLUMBING AND OTHER SYSTEMS...............25
XXXVII WAIVERS BY TENANT.....................................25
XXXVIII WAIVER OF TRIAL BY JURY...............................26
XXXIX SEVERABILITY..........................................26
XL GOVERNING LAW.........................................26
EXHIBITS
A - Sketch Showing Parameters of Demised Premises................
B - Description..................................................
C - "Tenant Work"................................................
C-1 - Addenda to Exhibit C - "Instructions to Tenant Contractors"..
D - Cleaning Schedule............................................
E - Rules and Regulations........................................
E-1 - Addenda to Exhibit E, "Instructions to Moving Contractors"...
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<PAGE>
OFFICE LEASE
This Lease, dated as of the 22nd day of September, 1987, by and between
CROSS STREET MEDICAL BUILDING PARTNERSHIP, a Connecticut general partnership,
organized and existing under the laws of the State of Connecticut (hereinafter
called the "Landlord"), and OPHTHALMIC PHYSICIANS AND SURGEONS, P.C., a
Corporation organized and existing under the laws of the State of Connecticut,
acting herein by Stuart Aaron, M.D., its President, hereunto duly authorized,
(hereinafter called "Tenant").
W I T N E S S E T H
ARTICLE I
PREMISES
SECTION 1.1 The Landlord does hereby lease and demise to Tenant, and
Tenant hereby hires and takes from Landlord, for the term and upon the rentals
hereinafter specified, floor space on the First Floor, consisting of
approximately 17,453 square feet of gross leaseable area, as outlined on a
certain plan attached hereto and made a part hereof as Exhibit A, which Exhibit
A delineates the premises herein demised (hereinafter called the "Demised
Premises") in the building located at Cross Street, Norwalk, Connecticut
(hereinafter called the "Building") situated on certain land described in
Exhibit B attached hereto and made a part hereof (hereinafter called the
"Land"). The Land and Building are hereinafter collectively referred to as
"Landlord's Building." Landlord shall finish the interior of the Demised
Premises for the charges and in accordance with the provisions set forth in
Exhibit C ("Tenant Work") attached hereto.
ARTICLE II
TERM
SECTION 2.1. TO HAVE AND HOLD the Demised Premises for a term of Five
(5) years (hereinafter referred to as the "Term" or the "Initial Term"),
commencing on December 1, 1987 (herein called the "Approximate Commencement
Date"). Tenant acknowledges that the date hereinbefore set forth for the
commencement of the term of this Lease is approximate, and, notwithstanding the
Approximate Commencement Date, it is understood that the term shall actually
commence on whichever of the following dates shall first occur:
(a) The date when the Tenant Work designated in said Exhibit C
is substantially completed (date of issuance of temporary C.O. for the Demised
Premises) and the Demised Premises shall be made available for occupancy by
Tenant, or at such earlier date as provided in said Exhibit C; or
(b) The date when Tenant shall take possession and occupy the
Demised Premises (herein called the "Actual Commencement Date" or the
"Commencement Date"). When the Actual Commencement Date of the term has been
determined, Landlord will prepare an instrument referring to this Lease, to be
signed by Landlord and in form suitable for recordation in the Norwalk Land
Records, setting forth the name and addresses of Landlord and Tenant, the date
of execution, the term of Lease and the actual Commencement Date and termination
date thereof, a description of the Demised Premises, a notation of any options
to extend, and a reference to a place where this Lease is to be on file. Tenant
or Landlord may record such instrument, but neither party shall record this
lease.
<PAGE>
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SECTION 2.2. EXTENDED TERM
Tenant shall have the option to extend the term of this Lease
for the Leased Premises for Two (2), Five (5) Year extended terms ("Extended
Terms"). Such option shall be exercised by written notice to Landlord given at
least twelve (12) months prior to the expiration of the prior five (5) year
Term. Each of the Extended Terms shall be upon the same covenants, agreements,
terms, provisions and conditions as are contained herein for the Initial Term,
except as expressly provided herein to the contrary and except for such terms as
are inapplicable to the Extended Term. The Annual Rent payable during the first
Extended Term shall be as provided in Section 4.2 while the Annual Rent payable
during the Second Extended Term shall be as provided in Section 4.3.
SECTION 2.3. TERM OF THIS LEASE.
The phrase "term" or "term of this Lease" shall mean the
Initial Term and any Extended Term which may become effective but unless and
until extended shall be the then current term.
ARTICLE III
USE OF PREMISES
SECTION 3.1 Tenant shall use the Demised Premises for medical offices
or other medical uses or allied health uses maintained and conducted by a
medical doctor or allied health professional and for no other purposes. Landlord
reserves the right to impose, or not to impose, a similar use restriction on
other premiss within the Building. No signs of any kind shall be installed or
maintained on the exterior of the Building in which the Demised Premises is
located, including the windows thereof, without the prior written consent of
Landlord. Tenant shall not place a load upon any floor of the Premises exceeding
the floor load per square foot which such floor was designed to carry and which
is allowed by law. Landlord reserves the right to prescribe the weight and
position of all safes which must be placed by Tenant, at Tenant's expense, so as
to distribute the weight. Business machines and mechanical equipment shall be
placed and maintained by Tenant, at Tenant's expense, in settings sufficient in
Landlord's judgment to absorb and prevent vibration, noise and annoyance.
ARTICLE IV
RENTAL
SECTION 4.1 Tenant agrees to pay to Landlord as rent for the Demised
Premises during the term, an annual rental of FOUR HUNDRED FIFTY THREE THOUSAND
SEVEN HUNDRED SEVENTY EIGHT ($453,778.00) DOLLARS (hereinafter called "Annual
Rent"), said Annual Rent to be payable in monthly installments equal to
one-twelfth (1/12) of the annual rate of Annual Rent, in advance, commencing on
the Commencement Date and on the first day of each successive calendar month
during the term of this Lease at the office of Landlord, or such other place as
Landlord may designate in writing from time to time, with payment in advance of
appropriate fractions of a monthly payment for any portion of a month of the
term of this Lease simultaneously with the execution of this Lease by Tenant. In
addition to said Annual Rent, Tenant agrees to pay Landlord such Additional
Rent, if any, as provided in Article V of this Lease.
<PAGE>
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SECTION 4.2: RENT FOR FIRST EXTENDED TERM.
(a) In the event Tenant exercises its option to extend the
term of this Lease for the First Extended Term, the Annual Rent which the Tenant
shall pay during the First Extended Term shall be the Net Annual Rent as defined
in Section 5.1 plus an increase as determined in accordance with the provisions
of subdivision (b) of this Section plus its share of Operating Expenses as
provided in Section 5.1 plus its share of electrical energy expenses as provided
in Section 5.2.
(b) (1) As promptly as practicable after the end of the
Initial Term of this Lease, the Landlord shall compute the increase, if any, in
the cost of living for the preceding five-year period based upon the Consumer
Price Index for Urban Wage Earners and Clerical Workers (C.P.I. - C.W.) , N.Y.,
N.Y. - Northeastern N.J., all items (1967 = 100) (the "Index"), published by the
Bureau of Labor Statistics of the United States Department of Labor.
(2) The Index number for the month of December, 1987,
shall be the "base Index number" and the corresponding Index number for the
month of December, 1992, shall be the "current Index number."
(3) The current Index number shall be divided by the base
Index number. From the quotient thereof, there shall be subtracted the integer
1, and any resulting positive number expressed as a percentage shall be deemed
to be the percentage of increase in the cost of living. E.G. - a positive
number .2356 shall be expressed as 23.56%.
(4) The percentage of increase multiplied by the Net
Annual Rent shall be the increase required to be determined by subdivision (b)
of this Section.
(5) The Landlord shall, within a reasonable time after
obtaining the appropriate data necessary for computing such increase, give
the Tenant notice of any increase so determined, and the Landlord's computation
shall be conclusive and binding but shall not preclude any adjustment which may
be required in the event of a published amendment of the index figures upon
which the computation was based unless the Tenant shall, within sixty (60) days
after the giving of such notice, notify the Landlord of any claimed error
therein. Any dispute between the parties as to any such computation shall be
determined by arbitration.
(c) The fixed rent, as so determined (i.e., the aggregate of
the Net Annual Rent and the "increase" calculated in accordance with
subparagraphs 1 to 4 of subdivision (b) of this Section, inclusive) plus the
appropriate share of Operating Expenses and electrical energy expenses as set
forth in Article V, shall be due and payable to the Landlord in equal monthly
installments commencing with the first month of the Extended Term of this lease
(any retroactive payments then due being payable within five (5) days after the
giving of such notice), and in the event of any subsequent redetermination of
such amount the adjustment thus indicated shall be made promptly between the
Landlord and the Tenant.
(d) If publication of. the Consumers price Index shall be
discontinued, the parties shall accept comparable statistics on the cost of
living for an area within which is located the City of Norwalk, as they shall be
computed and published by an agency of the United States or by a responsible
financial periodical of recognized authority then to be selected by the parties
or, if the parties cannot agree upon a selection, by arbitration. In the event
of (1) use of comparable statistics in place of the Consumer Price Index, or (2)
publication of the Index figure at other than monthly intervals, there shall be
made in the method of computation such revisions as the circumstances may
require to carry out the intent of this Section, and any dispute between the
parties as to the making of such adjustment shall be determined by arbitration.
SECTION 4.3. RENT FOR SECOND EXTENDED TERM.
<PAGE>
-4-
(a) In the event Tenant exercises its option to extend the
term of the Lease for the Second Extended Term, the Net Annual Rent which the
Tenant shall pay during the Second Extended Term shall be the Pair Market Net
Annual Rent as of the first day of the Second Extended Term (hereafter "Fair
Market Net Annual Rent") as determined by the parties plus its share of
Operating Expenses provided in Section 5.1 plus its share of electrical energy
expenses as provided in Section 5.2. Failing agreement between the parties, the
determination as to the Pair Market Net Annual Rent shall be made by arbitration
under the provisions of Article XXIV herein. The arbitration panel shall be
limited to determining the Fair Market Net Annual Rent for the Second Extended
Term.
(b) The fixed rent, as so determined (i.e. the aggregate of
the Fair Market Net Annual Rent plus the appropriate share of Operating Expenses
and electrical energy expenses as set forth in Article V) shall be due and
payable to the Landlord in equal monthly installments commencing within the
first month of the Second Extended Term of the Lease (any retroactive payments
then due being payable within five (5) days of the agreement or the arbitration
panel's decision of Fair Market Net Annual Rent).
ARTICLE V
ADDITIONAL RENT
SECTION 5.1. Landlord and Tenant agree that the Annual Rent of
$453,778.00 stated in Section 4.1 herein includes the sum of $91,628.25 covering
the pro-rated, estimated costs of Landlord's "Operating Expenses", as hereafter
defined. Said sum equals 25.391% of the projected annual "Operating Expenses"
based upon 68,736 square feet of gross leasable area in the Building of which
25.391% or 17,453 square feet of gross leasable area is demised to Tenant. The
Annual Rent of $453,778.00 less the projected annual "Operating Expenses" of
$91,628.25 equals the sum of $362,149.75 herein referred to as "Net Annual
Rent." Landlord shall determine as of the last day of each calendar year during
the term hereof, or Extended Term, the actual "Operating Expenses" for said
calendar year incurred in connnection with the operating and maintenance of said
building and improvements and real estate owned by Landlord appurtenant to said
Building including, but not limited to, parking, accessway, sidewalk, and
planting areas. 25.391% of same shall be allocated as Tenant's pro-rata portion.
If such pro-rated actual Operating Expenses for any calendar year shall
be greater (resulting in a deficiency) or shall be less (resulting in an excess)
than. said sum of $91,628.25 then:
(a) Tenant shall, in case of such a deficiency, pay to
Landlord as Additional Rent for the Premises for such calendar year the amount
of the difference, or
(b) In case of such an excess, Landlord shall pay to the
Tenant the amount of the difference.
Any such adjustments payable by reason of this Article shall be payable
in one lump sum on the due date of the next monthly installment of fixed rent
after the date of notice to Tenant of said adjustment. Upon Landlord furnishing
Tenant with a statement relating to such actual Operating Expenses, pro-rated,
all monthly installments thereafter due during the next calendar year shall be
increased or decreased to reflect one-twelfth (1/12) of the annual amount of
such adjustment until a new adjustment becomes effective for the following year
provided, however, that if the statement is furnished to Tenant after the
commencement of a calendar year, in addition, there shall be promptly paid by
Tenant to Landlord, or vice-versa, as the case may be, an amount equal to the
portion of such adjustment allocable to the part of such new calendar year which
shall have elapsed prior to the notice of adjustment. In the event that the
Operating
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Expenses thereafter paid, incurred or projected during any calendar year
increase or decrease at any annual rate in excess of ten (10%) percent of the
amount of the Operating Expenses on which the adjustment then in effect is
based, then the monthly installments thereafter due during such calendar year
shall be further adjusted to reflect such increase or decrease in excess of ten
(10%) percent.
Landlord, upon not less than thirty (30) days notice to Tenant, may
elect to require Tenant to pay in a lump sum with the next succeeding
installment of rent, Tenant's proportionate share of any prepaid real estate
taxes paid by Landlord. In such case, the monthly installments of fixed rent
payable by Tenant to Landlord during the prepaid tax period shall be decreased
by an amount equal to the fractional part thereof attributable to said prepaid
real estate taxes.
For purposes of determining what adjustment, if any, shall be made
covering the period ending on the last day of each calendar year the term
"Operating Expenses" shall be deemed to encompass any and all operating expenses
paid or incurred by Landlord for the operation of Landlord's Building and other
improvements and shall specifically include, but not be limited to:
(a) Management fees pertaining to the operation of the
Building, and reasonable wages and salaries of all necessary employees including
clerical personnel engaged in the physical operation and maintenance of
Landlord's Building and other improvements, Employer's Social Security Taxes and
any other taxes which may be levied on such wages and salaries.
(b) All supplies and materials used in the operation and
maintenance of such Building and improvements, (excluding the cost of
electricity and electrical heating as covered under Section 5.2), and other
utilities.
(c) The costs of maintaining, repairing, snow plowing, lining
and lighting all parking, sidewalk, and ingress areas, including traffic
controls, and the planting, mowing and maintaining of all planted areas.
(d) The costs of all maintenance and service agreements on
equipment.
(e) Hazard and liability insurance premiums, other than that
to be maintained by Tenants.
(f) The costs of repairs, ordinary cleaning and general
maintenance of the Premises, exclusive of expenses such as:
(1) alterations for the accomodation of a specific
tenant or tenants;
(2) extra cleaning for a specific tenant or tenants
for which direct charges are made;
(3) expenditures made for capital investment or
improvements; or
(4) any repairs or maintenance to be performed by
tenants.
(g) All taxes and assessments and governmental charges whether
Federal, State or municipal which are levied or charged against Landlord's
Building and improvements, or against any personal property used in the
operation of Landlord's Building and any other taxes and assessments
attributable to Landlord's Building, or its operation (excluding, however,
Federal, State or other income taxes).
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The "Operating Expenses" for the calendar year in which the term of
this Lease shall begin as well as for the calendar year in which this Lease
shall and shall be apportioned so that the Tenant shall pay only those portions
of each such calendar year as are within the lease term.
SECTION 5.2. (a) As an incident to this Lease, Landlord shall furnish
to Tenant, through the transmission facilities initially installed by Landlord
in the Building, alternating electrical energy to be used for heating the
Building and for the operation of the lighting fixtures and Tenant's business
machines and equipment. In addition to the payment of a prorated share of
Landlord's Operating Expenses, Tenant shall pay to Landlord, as further
additional rent, an amount equal to $1.75 per annum per square foot of gross
leaseable area of the Demised Premises, by reason of which Landlord has agreed
to supply Tenant with electrical energy, subject to and in accordance with the
provisions of this Section. Such factor per square foot was based upon certain
theoretical assumptions incorporating approximate estimates of the probable
consumption of electrical energy by the proposed lighting fixtures and other
equipment and business machines to be initially installed in the Demised
premises, the anticipated period of operation of such lighting fixtures,
equipment and machines and the cost of furnishing such electrical energy and the
prorated cost of electrical energy and heating throughout Landlord's Building.
(b) (1) It is hereby further agreed between Landlord and
Tenant that at the expiration of one year following the term commencement date
the engineers and experts, selected as hereinafter provided, shall survey and
determine Tenant's expected total annual consumption of electrical energy in the
Demised Premises and Tenant's prorated share of the cost of electrical energy
and heating throughout Landlord's Building, which survey shall include a
determination of the power requirements of Tenant's equipment and business
machines and of the lighting in the premises and a determination of the periods
of use of such lighting fixtures, equipment and machines. Using such survey
there shall then be determined by said engineers and experts, by reference to
the appropriate rate schedules of the public utility furnishing electrical
energy to the Building, the estimated annual cost (including taxes regularly
passed on by said public utility to the consumer) for same. The said engineers
and experts shall determine a new square foot factor (the "Adjusted Electrical
Rent Inclusion Factor") for the premises (in lieu of the $1.75 per square foot
hereinbefore mentioned) by dividing the rentable square feet of the premises
into the estimated cost determined pursuant to the next preceding sentence.
(2) At any time, and from time to time; after the
Adjusted Electrical Rent Inclusion Factor is determined pursuant to the
provisions of clause (l) of this subparagraph (b), either Landlord or Tenant
may, in accordance with the procedure hereinafter specified in this subparagraph
(b), have the Adjusted Electrical Rent Inclusion Factor then in effect be
further adjusted to take into account:
A. any material alteration or material
addition to Tenant's lighting fixtures, equipment and machines in the Demised
Premises or to the cost of electrical energy and heating throughout the
Landlord's Building;
B. use by Tenant of additional electrical
energy in the Demised Premises (i.e., use of electrical energy in excess of the
quantity to be furnished pursuant to this Section 5.2 and/or during periods of
use other than those considered in the last survey made pursuant to clause (1)
or (3) of this subparagraph (b); or
C. any increase of decrease in Landlord's
cost or expenses for or in connection with the furnishing by it of electrical
energy to Tenant or to Landlord's Building, in accordance with the provisions of
this Lease, which shall be due to any change in the rates charged by the public
utility company furnishing such electrical energy, since the effective date of
the Adjusted Electrical Rent Inclusion Factor then in effect (taking into
account all prior adjustments made pursuant to this subparagraph (b)).
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(3) Whenever at any time during the term of this Lease
an adjustment pursuant to subdivision A or B clause (2) of this subparagraph
(b) shall be made by Landlord or Tenant, the party instituting the
adjustment shall furnish to the other party a survey setting forth a new
Adjusted Electrical Rent Inclusion Factor in accordance with the following
provisions of this Clause (3). The engineers and experts, selected as
hereinafter provided, shall survey and determine Tenant's expected total annual
consumption of electrical energy in the Demised Premises and Tenant's prorated
cost of electrical energy and heating throughout Landlord's Building, which
survey shall include a determination of the power requirements of Tenant's
lighting fixtures, equipment and machines in the premises and a determination of
the periods of use of such lighting fixtures, equipment and machines. Using such
survey there shall then be determined by said engineers and experts, the
estimated annual cost (including taxes regularly passed on by said public
utility to the consumer) to Tenant. The said engineers and experts shall
determine a new Adjusted Electrical Rent Inclusion Factor for the Demised
Premises in lieu of the Adjusted Electrical Rent Inclusion Factor then in effect
by dividing the rentable square feet of the Demised Premises into the estimated
annual cost determined pursuant to the next preceding sentence.
(4) Upon the determination of the Adjusted Electrical
Rent Inclusion Factor pursuant to Clause (1) or any determination of a new
Adjusted Electrical Rent Inclusion Factor pursuant to Clause (3), the party
instituting such adjustment shall furnish the other party a statement in writing
recomputing and adjusting the fixed rent hereunder by an appropriate sum
representing any increase or decrease from:
(i) said factor of $1.75 per square foot of
gross leaseable area.
(ii) in the case of any determination of a new
Adjusted Electrical Rent Inclusion Factor, the Adjusted Electrical Rent
Inclusion Factor in effect immediately prior to such adjustment, which statement
shall be accompanied
a. in the case of any adjustment
made pursuant to clause (1) or pursuant to subdivision A or B of clause (2) , by
the survey referred to in clause (1) or (3) (as the case may be) and upon which
said adjustment was based, or
b. in the case of any adjustment
made pursuant to subdivision C of clause (2), by the inclusion of sufficient
detail to enable the party receiving such statement to verify the determination
of the amount of the adjustment referred to therein.
(5) Each such adjustment shall be effective
retroactively as of:
(i) the term commencement date, as respects
the Adjusted Electrical Rent Inclusion Factor determined pursuant to clause (1),
or
(ii) the effective date of the material
alteration, material addition or change in usage by Tenant, as respects an
adjustment made pursuant to subdivision A or B of clause (2), or
(iii) the date of the change in rates, as
respects an adjustment made pursuant to subdivision C of Clause (2).
Within twenty (20) days after the furnishing of any such statement in writing,
if the Adjusted Electrical Rent Inclusion Factor shall have been increased,
Tenant shall pay to Landlord as additional rent the retroactive underpayment of
fixed rent; and conversely, if the Adjusted Electrical Rent Inclusion Factor
shall have been decreased, Landlord shall refund to Tenant the retroactive
overpayment of fixed rent.
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The cost of any survey and determination to be made pursuant to clause
(1) or (3) shall be borne equally between Landlord and Tenant. The determination
of the engineers and experts preparing any such survey shall be conclusive upon
Landlord and Tenant.
(6) It is agreed that all such surveys shall be made
by engineers and experts then mutually agreeable to both Landlord and Tenant,
and, in the event Landlord and Tenant are unable to agree upon such company,
such company shall be selected by arbitration in accordance with the provisions
of Article XXIV herein.
(7) Anything herein to the contrary notwithstanding,
it is the intention of the parties hereto that the cost to Tenant for electrical
energy at any time shall come as close as is practicable to approximating the
annual cost (including taxes regularly passed on by said public utility to the
consumer) which would have been incurred by Tenant had Tenant purchased such
quantity of electrical energy, on a monthly basis, directly from said public
utility on a direct meter basis.
(c) In the event that Tenant shall require additional
electrical energy for use in the premises in excess of such reasonable quantity
to be furnished for such use as hereinbefore provided and if, in Landlord's sole
judgment, Landlord's facilities are inadequate for such additional requirements,
and if electrical energy for such additional requirements is available to
Landlord, Landlord upon written request and at the sole cost and expense of
Tenant, will furnish and install such additional wires, risers, conduits,
feeders and switchboards as reasonably may be required to supply such additional
requirements of Tenant, provided (1) that the same shall be permitted by
applicable laws and insurance regulations, (2) that, in Landlord's sole
judgment, the same are necessary and will not cause permanent damage or injury
to the Building or the premises or cause or create a dangerous or hazardous
condition or entail excessive or unreasonable alterations or repairs or
interfere with or disturb other tenants or occupants of the Building and (3)
that Tenant, at Tenant's expense, shall, concurrently with the making of such
written request, execute and deliver to Landlord Tenant's written undertaking,
with a surety and in form and substance satisfactory to Landlord, obligating
Tenant to fully and promptly pay the entire cost and expense of so furnishing
and installing any such additional wires, risers, conduits, feeders and/or
switchboards.
(d) Landlord shall not in anyway be liable or responsible to
Tenant for any loss or damage or expense which Tenant may sustain or incur if,
during the term of this Lease, either the quantity or character of electrical
energy is changed or is no longer available or suitable for Tenant's
requirements.
Landlord shall in no way be liable for any failure, inadequacy or
defect in the character or supply of electrical energy furnished to the premises
except for actual damage suffered by Tenant by reason of any such failure,
inadequacy or defect resulting from the negligence of the Landlord.
Tenant, at Tenant's expense, shall purchase and install all lamps
(including, but not limited to, incandescent and fluorescent) and ballasts used
in the premises, except that Landlord shall furnish and install the ballasts
initially used in the premises and Landlord shall furnish the labor for
installing the initial lamps (including, but not limited to, incandescent and
fluorescent) used in the premises.
In order that Landlord may at all times have all necessary information
that it requires in order to maintain and protect its equipment, Tenant agrees
that Tenant will not make any material alteration or material addition to the
electrical equipment and/ or applicances in the premises without the prior
written consent of Landlord in each instance and will promptly advise Landlord
of any other alteration or addition to such electrical equipment and/or
applicances.
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Tenant agrees to advise Landlord in writing as to any material change in the
periods of use of Tenant's lighting fixtures, equipment and business machines.
ARTICLE VI
TENANT'S IMPROVEMENTS AND ALTERATIONS
SECTION 6.1. Tenant shall not make any tenant improvements to the
Demised Premises without Landlord's prior written consent, which consent shall
not be unreasonably withheld. Tenant improvements (hereinafter called "Tenant
Improvements") shall mean all work, alterations, decorations, installations,
additions or improvements to the Demised premises made by the Tenant after the
Actual Commencement Date of this Lease. All such Tenant Improvements shall be
done at Tenant's full cost and expense, shall comply with all applicable
governmental regulations, shall be done only by contractors, sub-contractors and
mechanics approved by Landlord, which approval shall not be unreasonably
withheld, to Landlord's reasonable satisfaction, shall be done in a manner which
will assure labor harmony at the site, and shall be done in a manner which will
not unreasonably disrupt the business activities or quiet enjoyment of any other
tenant of the Landlord's Building. As a condition precedent to Landlord's
consent to the making by Tenant of such Tenant's Improvements to the Demised
Premises, Tenant agrees to obtain and deliver to Landlord written and
unconditional waivers of mechanics' Liens upon the real property in which the
Demised premises are located, for all work, labor and services to be performed
and materials to be furnished in connection with such work, signed by all
contractors, sub-contractors, materialmen and laborers to become involved in
such work. Notwithstanding the foregoing, if any mechanic's lien is filed
against the Demised Premises or the Landlord's Building for work claimed to have
been done for, or materials claimed to have been furnished to Tenant (other than
for work which Landlord shall perform for Tenant under Schedule C), it shall be
discharged by Tenant within thirty (30) days thereafter, at Tenant's expense, by
filing the bond required by law, or by payment or otherwise. Landlord shall not
be liable for any failure of any building facilities or services installed by
Landlord caused by alterations, installations, arid/or additions by Tenant, and
Tenant shall promptly correct any such failure. In the event Tenant shall not
promptly correct same, Landlord may make such correction and charge Tenant for
the cost thereof, plus twenty percent (20%) of such cost for overhead and
administrative work. Such sum due Landlord shall be deemed Additional Rent and
shall be paid by Tenant promptly upon being billed therefor.
Section 6.2. Prior to commencing any work pursuant to the provisions of
Section 6.1, Tenant shall furnish to Landlord:
(a) Copies of all governmental permits and authorizations
which are required in connection with such work;
(b) A certificate evidencing that Tenant (or Tenant's
contractors) has (have) procured workmen's compensation insurance covering all
persons employed in connection with the work who might assert claims for death
or bodily injury against Landlord, Tenant or Landlord's Building.
(c) Such additional personal injury and property damage
insurance as Landlord may reasonably require because of the nature of the work
to be done by Tenant.
Section 6.3. Tenant may not engage in the preparation of food or baked
goods or engage in the use or, other than those customarily kept within medical
offices, the storing of inflammable or combustible material, without Landlord's
consent which consent shall not be unreasonably withheld. Nothing contained
herein shall be construed as prohibiting the use of a coffee maker on the
Demised Premises.
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Section 6.4. All Tenant's Improvements upon the Demised Premises and
any replacements therefor, made by either party, which have been approved by the
Landlord, including all paneling, decorations, partitions, railing, mezzanine
floors, galleries and the like, affixed to the realty shall become the property
of Landlord and shall remain upon, and be surrendered with the Demised Premises
as a part thereof at the termination of this Lease, without compensation to
Tenant. Anything to the contrary herein contained, specialty medical use
improvements such as demountable partitions (lead sandwich partitions) used in
radiology office construction may be removed at the termination of Lease
provided that Tenant repairs any damage and restores the Demised Premises to
good order and condition.
Section 6.5. Where furnished by or at the expense of Tenant, all
movable property, furniture, furnishings and trade fixtures including those
affixed to the realty (including any vault) shall remain the property of Tenant
and shall be removed by Tenant at its expense at any time before the expiration
of the term of this Lease and in case of damage by such removal, Tenant shall
restore the Demised Premises and Landlord's Building to good order and
condition.
ARTICLE VII
COMPLIANCE WITH INSURANCE REQUIREMENTS
Section 7.1. Tenant shall not do or permit to be done any act or thing
upon the Demised Premises which will invalidate or be in conflict with fire,
public liability or other insurance policies, or in conflict with any
regulations or ordinances covering Landlord's Building, and shall not do, or
permit to be done, any act or thing upon the Demised Premises which shall or
might subject Landlord to any liability or responsibility for injury to any
person or persons or to property by reason of any business or operation being
carried on at the Demised Premises or for any reason.
Tenant at its sole expense shall comply with all rules, orders,
regulations and requirements of the board of fire underwriters or other similar
body or authority having jurisdiction, and shall not do or permit anything to be
done on or upon the Demised Premises, or bring or keep anything therein, which
is prohibited by the fire department or any of such boards of fire underwriters
or other body or authority which would increase the rate of fire insurance
applicable to Landlord's Building over that in effect on the Commencement Date
of this Lease. If by reason of failure to comply with the provisions of this
Section 7.1 or by reason of the use or occupancy of the Demised Premises by
Tenant the fire insurance rate shall on the Actual Commencement Date of this
Lease or at any time thereafter be higher than it otherwise would be, then
Tenant upon demand of Landlord shall reimburse Landlord, as Additional Rent
under this Lease, for that part of all fire insurance premiums thereafter paid
by Landlord which shall have been charged because of such failure or use of the
Demised Premises by Tenant.
Landlord shall cause to be inserted a similar provision in other leases
for floor space in Landlord's Building.
ARTICLE VIII
COMPLIANCE WITH LAW
Section 8.1. Tenant at its sole cost and expense shall provide safe and
healthful working conditions for the employees of Tenant, and Tenant shall
comply with all laws, orders, and regulations of Federal, State, County and
Municipal Authorities and with any direction of any duly authorized public
officer or officers having jurisdiction pursuant to law which shall impose
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any violation, order or duty upon Landlord or Tenant with respect to the Demised
premises rising from Tenant's use or occupancy thereof.
ARTICLE IX
SERVICES
Section 9.1
(a) The Demised premises will be serviced by two elevators.
The elevators shall be operated by automatic control.
(b) Landlord shall, through the air-conditioning system of the
Building, furnish to the Demised Premises, Monday through Friday, from 8:00 A.M.
to 7:00 P.M., and Saturday from 8:00 A.M to 2:00 P.M., on an all-year-round
basis, air cooling, ventilation and heating. Sundays and such other state or
national holidays (herein called "Holidays") listed on the Rules and Regulations
of the Building, as they may be revised by Landlord from time to time, shall not
be deemed business days for the purposes of this subparagraph.
(c) Landlord will maintain the air-conditioning system in a
manner befitting a first-class building and will use all reasonable care to keep
the same in proper and efficient operating condition.
(d) Landlord will provide after-hours heating and
air-conditioning at such hourly rates as may be established by Landlord during
the term of this Lease but in no event more than reasonable as based upon
current charges in comparable space in the Norwalk area. Such hourly rates shall
be provided to Tenant upon request. Tenant shall give reasonable advance notice
to Landlord of Tenant's need for after-hours heating or air-conditioning. If
more than one tenant requests coinciding after hours heating and air
conditioning, the hourly rate, to the degree feasible, shall be prorated between
them.
(e) In the event that Tenant requires water to be furnished in
addition to the hot and cold water to be supplied by Landlord for ordinary uses
such as washing, drinking and lavatories, and specialty uses such as x-ray
facilities, provided same shall use nominal and limited amounts of water,
Landlord shall supply the same if reasonably possible, through a plumbing system
installed at Tenant's expense and Tenant shall pay the cost thereof as measured
by a meter or meters likewise installed at Tenant's expense.
(f) Tenant's use of electric energy in the Demised Premises
shall not at any time exceed the capacity of any of the electrical conductors
and equipment in or otherwise serving the Demised Premises. In order to insure
that such capacity is not exceeded and to avert possible adverse effect upon the
Building electric service Tenant shall not, without Landlord's prior written
consent in each instance (which shall not be unreasonably withheld), connect any
additional fixtures, appliances or equipment (other than lamps, typewriters and
similar small office machines) to the Building electric distribution system or
make any alteration or addition to the electric system of the Demised Premises.
(g) Landlord agrees to provide, except on Sundays and
Holidays, in the Demised premises all other services set forth on Exhibit D
annexed hereto and made a part hereof, entitled "Cleaning Schedule," and to keep
the sidewalks adjacent to the Building free from snow, ice and rubbish.
(h) Parking shall be provided on the site but no reserved
spaces shall be allocated to Tenant.
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(i) Landlord shall not be liable to anyone for the cessation
of any service rendered to the Demised Premises or to Landlord's Building as
agreed to by the terms of this Lease due to any cause beyond Landlord's
reasonable control but Landlord shall use its best efforts to remedy promptly
any such cessation. If, however, the Demised Premise's are rendered untenantable
in whole or part for a period of ten (10) consecutive business days or more, the
Net Annual Rent after such period of ten (10) days shall be equitably abated in
whole or part as the case may be. Disputes as to abatements shall be subject to
arbitration under the procedure set forth in Article XXIV.
(j) Entry to the Building and Demised premises through a key
and/or automatic card system shall be available to Tenant and its authorized
employees 24 hours a day 365 days a year.
ARTICLE X
LIABILITY INSURANCE
Section 10.1. Tenant shall, at Tenant's own cost and expense, secure
and maintain General Liability Insurance written on a so-called "Comprehensive"
general liability form with bodily injury limits of not less than $500,000 per
person, $5,000,000 per occurrence, and for a property damage limit of not less
than $1,000,000 per occurrence, and Tenant shall furnish to Landlord a
certificate of the Liability insurance carrier of Tenant evidencing coverage of
Tenant's contractual obligation to indemnify Landlord under Article XI of this
Lease. Prior to occupancy of the premises, Tenant shall deliver or cause to be
delivered to Landlord a certificate or certificates of General Liability
Insurance effected by Tenant under the terms hereof. Such certificate's shall
provide that in the event of termination or material change in coverage,
Landlord shall be given ten (10) days advance notice in writing sent by mail to
the address of Landlord.
ARTICLE XI
LIABILITY OF LANDLORD
Section 11.1 Tenant shall give immediate notice to Landlord in case of
accidents in the Demised Premises or in Landlord's Building or of defects
therein or in any fixtures or equipment. Tenant shall indemnify and save
harmless Landlord from and against any and all liability and damages, and from
and against any and all suits, claims, and demand of every kind and nature
including reasonable counsel fees by or on behalf of any person, firm,
association or corporation arising out of or based upon any accident, injury or
damage, however occurring, which shall or may happen during the period between
the date upon which the Demised Premises are made available to Tenant for the
making of Tenant's Improvements and the expiration of the term hereof, on or
about the Demised Premises, and from and against any matter or thing growing out
of the condition, maintenance, repair, alteration, use, occupation or operation
of the Demised Premises, unless caused by or due to the negligence or misconduct
of Landlord, or Landlord's agents, contractors, servants or employees. The
Landlord agrees to look solely to the Tenant for the satisfaction of each and
every remedy of the Landlord under the provisions of the herein Article XI, and
shall not look to any person, partnership, corporation or other entity of which
the Tenant is a subsidiary or affiliate. There shall be absolutely no personal
liability on the part of the Landlord, or any successor in interest to the
Landlord, in the fee or leasehold estate of the Landlord, as the case may be, of
any of the terms, covenants and conditions of this Lease to be performed by the
Landlord. Such exculpation of personal liability shall be absolute and without
any exception whatsoever.
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ARTICLE XII
REPAIRS
Section 12.1. Tenant shall take good care of the interior of the
Demised Premises and the fixtures and appurtenances therein, at its sole cost
and expense, and make promptly, as and when needed, all repairs and replacements
thereof to preserve them in good condition and working order, In addition,
Tenant shall pay for all other repairs made necessary by negligent acts of the
Tenant, its officers, directors, employees, servants and agents.
Section 12.2. Landlord shall, at its expense and within a reasonable
period of time, make all repairs and replacements, structural and otherwise,
(except those required by Tenant under Section 12.1) necessary to keep in good
order and repair the common areas (including the public halls and stairways) and
the exterior of Landlord's Building including all parts of the heating,
plumbing, electrical and air-conditioning systems of the Building, except those
installed by Tenant within the Demised Premises.
Section 12.3. All repairs, restorations or replacements by either party
shall be of first quality and done in a good and workmanlike manner.
ARTICLE XIII
DESTRUCTION, FIRE OR OTHER CAUSES
Section 13.1. If Landlord's Building is totally damaged or is rendered
wholly untenantable by fire or other cause, and cannot reasonably be repaired by
Landlord within one hundred twenty (120) days, or if the Building shall be so
damaged that Landlord cannot reasonably restore the same but must demolish it or
rebuild it, which Landlord may in its sole discretion determine, then either
party may, within sixty (60) days after such casualty, give to the other party a
notice in writing of intention to terminate this Lease, and thereupon the term
of this Lease shall expire by lapse of time upon the tenth (10th) day after such
notice is given, and Tenant shall vacate the Demised Premises and surrender the
same to Landlord. Upon termination of this Lease under this Section 13.1,
Tenant's liability for rent shall cease as of the first day following the
casualty or when Tenant ceases to do business in the Demised Premises, whichever
date is later. In the event this Lease is not terminated under the provisions of
this Section 13.1, Landlord shall repair and rebuild the Demised Premises with
reasonable diligence.
Section 13.2. If the Demised Premises shall be totally or partially
damaged by fire or other casualty, the damages to the Landlord's Building and to
the Demised Premises shall, to the extent that they were originally constructed
and furnished by the Landlord, be promptly repaired by and at Landlord's expense
and the damage to all of Tenant's fixtures and other improvements installed by
Tenant shall be promptly repaired by and at the expense of Tenant and the rent
until such repair shall be made shall be apportioned according to the part of
the Demised Premises which is tenantable by Tenant until the Landlord has made
the repairs required of Landlord.
Section 13.3. Each of Landlord and Tenant hereby releases the other
from any and all liability or responsibility (to the re1easor or anyone claiming
through or under the releasor by way of subrogation or otherwise) for any loss
or damage to property of the releasor or anyone claiming under the releasor, to
the extent covered by fire insurance or any of the extended coverage insurance,
additional extended coverage insurance or supplementary contract casualties,
even if such fire or other casualty shall have been caused by the fault or
negligence of the other party, or any for whom such party may be responsible.
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Section 13.4. Tenant shall carry fire insurance covering all property
of Tenant and all interior movable fixtures, and equipment or other improvements
installed by it in the Demised Premises, any loss payable under insurance being
payable directly to Tenant. Tenant agrees that Landlord shall not be liable for
any damage to personal property in the Demised Premises or to Tenant arising
from rain or snow or from the bursting, overflowing or leakage of water, steam
or gas pipes or defect in the lighting system or from any act or neglect of any
other tenant or occupant in Landlord's Building.
Section 13.5. Landlord shall provide and maintain, at its expense,
during the term hereof, adequate fire insurance (replacement cost endorsement)
and extended coverage insurance. Anything contained in this Lease to the
contrary notwithstanding, in the event the Landlord's Building shall be totally
or partially damaged by fire or other casualty, the Landlord shall not be
obligated to expend for such repair or restoration an amount in excess of the
net proceeds of insurance recovered as a result of such damage.
ARTICLE XIV
EMINENT DOMAIN
Section 14.1. In the event the whole of the Demised Premises shall be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, then and in that event, the term of this Lease shall cease and
terminate from the date of title vesting in such proceeding or the termination
of the right to possession, whichever is earlier. In the event any substantial
part thereof or of Landlord's Building or of the structure of which Landlord's
Building is a part is so acquired or condemned as to render the Demised Premises
untenantable or in the event that a part of Landlord's Building, other than the
Demised Premises, shall be so condemned or taken and if in the opinion of the
Landlord, the Building should be restored in such ways as to alter the Demised
Premises materially, the Landlord may terminate this Lease and the term and the
estate hereby granted by notifying the Tenant in writing of such termination and
this Lease and the term and estate hereby granted shall expire on the date
specified in the notice of termination, not less than thirty (30) days after the
giving of such notice, as fully and completely as if such date were the date
hereinbefore set forth for the expiration of the term of this Lease, and the
rent hereunder shall be apportioned as of said date. Tenant shall have no claim
against Landlord for the value of any unexpired term of said Lease, nor a claim
to any part of an award in such proceeding and rent shall be adjusted and paid
to the date of such termination. Nothing herein contained shall be deemed, to
affect or be in derogation of any right or rights of Tenant' against the
condemning authority to claim and recover damages, if any, to or for the taking
of its movable fixtures and equipment or expenses or removal or relocation
resulting from any such condemnation or acquisition.
ARTICLE XV
ASSIGNMENT, MORTGAGE, ETC.
Section 15.1. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not, during the Initial Term or during a Renewal Term,
assign, mortgage or encumber this Lease, nor sublet, or suffer of permit the
Demised Premises or any part thereof to be used by others, other than to an
affiliated entity comprised wholly of the principals as presently constitute
Tenant (E.G. a professional corporation or association comprised of the
individual doctors constituting Tenant) without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld. No
assignment or sublease to a proposed subtenant or assignee who is not a
Connecticut licensed medical doctor or allied health professional shall be
effective without
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the prior written consent of Landlord, which consent may be withheld in
Landlord's sole discretion. Except as herein provided, if this Lease be
assigned, or if the Demised Premises or any part thereof be sublet or occupied
by any party other than Tenant, Landlord may, at its option, terminate this
Lease, or may, at its option, after default by Tenant, collect rent from the
assignee, subtenant or occupants or tenant, and apply the net amount collected
to the rent herein received, but no such assignment, subletting occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, subtenant or occupant's tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. In the event Tenant shall at any time desire to have Landlord sublet
the Premises for Tenant's account, Landlord or Landlord's agents are authorized
to receive keys for such purposes without releasing Tenant from any of the
obligations under this Lease. The consent by Landlord to an assignment or
subletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
subletting. Each permitted assignee or transferee shall assume and be deemed to
have assumed this Less and shall be liable for the payment of the rent and
additional rent and for the due performance of all the terms, covenants,
conditions and agreements herein contained on Tenant's part to be performed for
the term of this Lease. No assignment shall be binding on Landlord unless such
assignee or Tenant shall deliver to Landlord a duplicate original of the
instrument of assignment, in form reasonably satisfactory to Landlord,
containing a covenant of assumption by the assignee of all of the aforesaid
written consent, prior thereto.
If this Lease be assigned or if the Premises or any part thereof be
sublet or occupied by anybody other than Tenant, Landlord may, after default by
Tenant, collect rent from the assignee, subtenant or occupant, and apply the net
amount collected to the rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of Tenant's
covenants contained in this Article XV, or the acceptance of the assignee,
subtenant or occupant as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained.
ARTICLE XVI
DEFAULT
Section 16.1. Tenant shall be in default under the terms of this lease
if any one or more of the following events (here sometimes called "events of
default") shall happen:
(a) If default shall be made in the due and punctual payment
of any Annual Rent, or Additional Rent payable under this Lease or any part
thereof, when and as the same shall become due arid payable, and such default
shall continue for a period of ten (10) days after notice from Landlord to
Tenant specifying the items in default; or
(b) If default shall be made by Tenant in the performance or
compliance with any of the agreements, terms, covenants or conditions in this
Lease provided other than those referred to in this Section 16.1 for a period of
thirty (30) days after notice from Landlord to Tenant specifying the items in
default, or in the case of a default or a contingency which cannot with due
diligence be cured within said thirty (30) day period, Tenant fails to proceed
within said thirty (30) day period to cure the same and thereafter to prosecute
the curing of such default with due diligence (it being intended in connection
with a default not susceptible of being cured with due diligence within said
thirty (30) day period that the time of Tenant within which to cure the same
shall be extended for such period as may be necessary to complete the same with
all due diligence); or
(c) If Tenant shall file a voluntary petition in bankruptcy or
shall be adjudicated a bankrupt or insolvent, or shall file any petition or
answer seeking any
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reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal bankruptcy act or any
other present or future federal, state or other bankruptcy or insolvency statute
or law, or shall seek or consent to or acquiesce in the appointment of any
bankruptcy or insolvency trustee, receiver or Liquidator of Tenant or of all or
any substantial part of its properties or of the Demised Premises, and if such
condition shall continue for a period of thirty (30) days after notice from
Landlord specifying the matter involved; or
(d) If (i) any proceeding shall be filed against Tenant
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future federal, state or other bankruptcy or
insolvency statute or law and if such proceeding shall not have been dismissed
within thirty (30) days after notice (to be given not before the expiration of
said thirty-day period) from Landlord to Tenant of an intention to terminate
this Lease for failure to remove the condition in question, or (ii) within sixty
(60) days after the appointment, without the consent or acquiescence of Tenant,
of any trustee, receiver or liquidator of Tenant or of all or substantially all
of its properties or of the Demised Premises, such appointment shall not have
been vacated or stayed on appeal or otherwise.
In any event of default set forth in this Section 16.1, Landlord at any
time thereafter may give written notice to Tenant specifying such event of
default or events of default and stating that this Lease and the term hereby
demised shall expire and terminate on the date specified in such notice, which
shall be at least ten (10) days afer the giving of such notice, and upon the
date specified in such notice this Lease and the term hereby demised and all
rights of Tenant under this Lease including any renewal privileges whether or
not exercised, shall expire and terminate, and Tenant shall remain liable as
hereinafter provided.
Landlord may, at Landlord's option, and, in addition to any other
remedies which Landlord may have, upon default by the Tenant, give to Tenant
written notice of such default and advise Tenant thereby that, unless all the
terms, covenants and conditions of this Lease are fully complied with within
thirty (30) days after giving of such notice, the entire amount of rent herein
reserved or agreed to be paid and then remaining unpaid shall immediately become
due and payable upon expiration of said thirty (30) days; and, unless all the
terms, covenants and conditions of this lease are fully complied with by Tenant
within said thirty (30) days, the whole of said rent shall immediately become
due and payable upon the expiration of said thirty (30) days without further
notice to Tenant.
Section 16.2. Any such proceeding or action involving bankruptcy,
insolvency, reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute or
law, set forth above in Section 16.1 shall be grounds for the termination of
this Lease pursuant to the terms of this Article only when such proceeding,
action or remedy shall be taken or brought by or against the then holder of the
leasehold estate under this lease.
Section 16.3. Upon any such expiration or termination of this Lease,
Tenant shall quit and peacefully surrender the Demised Premises to Landlord, and
Landlord, upon or at any such expiration or termination may without further
notice, enter upon and re-enter the Demised Premises and possess and repossess
itself thereof, by force, summary proceedings, ejectment or otherwise, and may
dispossess Tenant and remove Tenant and all other persons and property from the
Demised Premises and may have, hold and enjoy the Demised Premises and the right
to receive all rental income of and from the same.
Section 16.4. If this Lease shall be terminated pursuant to this
Article XVI, or by summary proceedings or otherwise, or if the Demised Premises
or any part thereof shall be
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abandoned by Tenant, or shall become vacant during the term hereof, Landlord
may, in its own name, but as agent for Tenant if this Lease not be terminated,
or if this Lease be terminated, in its own behalf, relet the Demised Premises or
any part thereof, or said premises, with additional premises for such term or
terms (which may be greater or less than the period which would otherwise have
constituted the balance of the term of this Lease) and on such conditions (which
may include concessions or free rent and alterations of the Demised Premises) as
Landlord, in its uncontrolled discretion, may determine and may collect and
receive the rents therefor. Landlord shall in no way be responsible or liable
for any failure to relet the Demised Premises or any part thereof, or of any
failure to collect any rent due upon such reletting.
Section 16.5. Landlord shall in no event be charged with default in any
of its obligations hereunder unless and until Landlord shall have failed to
perform such obligations within fifteen (15) days (or such additional time as is
reasonably required to correct any such default), after written notice to
Landlord by Tenant, specifically describing such failure.
ARTICLE XVII
REMEDIES OF LANDLORD
Section 17.1. In case of any such default, reentry, expiration and/or
dispossess by summary proceedings or otherwise, provided in Article XVI of this
Lease:
(a) The Annual Rent and Additional Rent shall become due
thereupon and be paid to the time of such reentry, dispossess and/or expiration,
together with such expenses as Landlord may incur for legal expenses, attorney's
fees, brokerage and/or putting the Demised Premises in good order, or for
preparing the same for re-rental;
(b) Landlord may re-let the Demised Premises or any part or
parts thereof, either in the name of Landlord or otherwise, for a term or terms,
which would otherwise have constituted the balance of the term of this Lease and
may grant concessions or free rent; and/or
(c) Tenant or the legal representatives of Tenant shall also
pay Landlord as liquidated damages for the failure of
Tenant to observe and perform said Tenant's covenants herein contained, any
minimum deficiency between:
(1) The rent hereby reserved and/or covenanted to be
paid; and
(2) The net amount, if any, of the rents collected on
account of the lease or leases of the Demised Premises for each month of the
period which would otherwise have constituted the balance of the term of this
Lease.
Section 17.2. In computing such liquidated damages, there shall be
added to the said deficiency such expenses as Landlord may incur in connection
with the re-letting, such as legal expenses, attorneys' fees, brokerage fees and
for keeping the Demised Premises in good order or for preparing the same for
reletting and interest on any payments made after the due date computed at the
greater of twelve percent (12%) per annum, or the maximum permitted by
Connecticut law. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this Lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Landlord to collect the deficiency for any
subsequent month by a similar proceeding. Landlord at its option may make such
reasonable alterations, repairs, replacements and/or decorations in the Demised
Premises as Landlord considers advisable and necessary for the purpose of
re-letting the Demised Premises;
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and the making of such alterations and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. The inability
of Landlord to re-let the Demised Premises or any part thereof shall not release
or affect Tenant's liability for damages hereunder nor shall Landlord in any
event be liable in any way whatsoever for inability to re-let the Demised
Premises. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. No such
expiration or termination of this Lease shall relieve Tenant of its liability
and obligations under this Lease. Mention in this Lease of any particular remedy
shall not preclude Landlord from any other remedy, at law or in equity.
Section 17.3 Curing Tenant's Defaults--Additional Rent
If Tenant shall default in the keeping, observance or
performance of any provision or obligation of this Lease, Landlord, without
thereby waiving such default may perform the same for the account and at the
expense of Tenant, without notice in a case of emergency and in any other case
if such default continues after three (3) days from the date of the giving by
Landlord to Tenant or written notice of intention to so do. Bills for any
expense incurred by Landlord in connection with any such performance by Landlord
for the account of Tenant, and bills for all reasonable costs, expenses and
disbursements of every kind and nature whatsoever, including, but not limited
to, reasonable counsel fees, involved in collecting or endeavoring to collect
the Annual Rent or Additional Rent or other charge or any part thereof or
enforcing or endeavoring to enforce any rights against Tenant, under or in
connection with this Lease, or pursuant to law, including (without being limited
to) any such cost, expense and disbursement involved in instituting and
prosecuting any action or proceeding (including any summary disposess
proceeding), as well as bills for any property, material, labor or services
provided, furnished or rendered, or caused to be provided, furnished or
rendered, by Landlord to Tenant including (without being limited to) electric
lamps and other equipment, construction work done for the account of Tenant,
water, towel and other services, as well as for any charges for any additional
elevator, heating, air conditioning or cleaning services incurred under Article
IX hereof and any charges for other similar or dissimilar services incurred
under this Lease, may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and shall be due and payable in accordance with the terms of
said bills, and if not paid when due, the amounts hereof shall immediately
become due and payable as additional rent under this Lease.
ARTICLE XVIII
RULES AND REGULATIONS
Section 18.1 To the extent not inconsistent with this Lease, Tenant and
Tenant's servants, employees, agents, visitors, and licensees shall observe
faithfully, and comply strictly with, the Rules and Regulations for the Building
attached hereto and made a part hereof as Exhibit E, as the same may hereafter
be amended and modified by the Landlord, and such other reasonable rules and
regulations as Landlord or Landlord's agents may, from time to time, adopt that
are generally applicable to all Tenants. Notice of any amendments or
modifications of said Rules and Regulations of the Building or of any other
rules or regulations shall be given in writing. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce the
Rules and Regulations, or any other rules or regulations, or terms, covenants or
conditions in any other lease, as against any other tenant, but Landlord shall
not be discriminatory in the enforcement of said Rules and Regulations or any
other rules or regulations. Landlord shall not be liable to Tenant for violation
of the Rules and Regulations or any other rules or regulations by any other
tenant, its servants, employees, agents, visitors or licensees.
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ARTICLE XIX
NO REPRESENTATIONS BY LANDLORD
Section 19.1. Landlord or Landlord's agents have made no
representations or promises with respect to Landlord's Building or the Demised
Premises except as herein expressly set forth.
ARTICLE XX
QUIET ENJOYMENT
Section 20.1. Landlord represents and covenants that Landlord has full
right, power and authority to enter into this Lease for the term herein granted
and Landlord covenants and agrees with Tenant that upon Tenant paying the Annual
Rent and Additional Rent and observing and performing all the terms, covenants
and conditions on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the Demised Premises, free from any interference,
molestation or acts of Landlord or of anyone claiming by, through or under
Landlord, subject, nevertheless, to the terms and conditions of this Lease and,
as provided in Article XXII, to any ground lease, underlying leases and
mortgages, as of record appears, and all modifications thereof.
ARTICLE XXI
VARIOUS COVENANTS
Section 21.1. Tenant covenants and agrees that Tenant will:
(a) Take good care of the Demised Premises, and pay to
Landlord the expenses of making good any injury, damage or breakage done by or
on behalf of Tenant.
(b) Permit Landlord and any mortgagee of the Building and/or
the Land or of the interest of Landlord therein and any lessor, under any ground
or underlying lease, and their representatives, upon reasonable advance notice,
to enter the Demised Premises at all reasonable hours for the purposes of
inspection, or of making repairs, replacement or improvements in or to the
Demised Premises or the Building or equipment, or of complying with all laws,
orders and requirements of governmental or other authority or of exercising any
right reserved to Landlord by this Lease (including the right during the
progress of any such repairs, replacements or improvements or while performing
work and furnishing materials in connection with compliance with any such laws,
orders or requirements, to keep and store within the Demised Premises all
necessary materials, tools and equipment). Such entry and activities by Landlord
shall be conducted in such fashion as to have as limited an impact on Tenant's
occupancy as possible.
(c) Permit Landlord, at reasonable times, to show the Demised
Premises to any lessor under any ground or underlying lease, or any lessee or
mortgagee, or any prospective purchaser, lessee, mortgagee, or assignee of any
mortgage, of the Building and/or the Land or of Landlord's interest therein, and
their representatives, and during the period of twelve (12) months next
preceding the date of expiration of the term hereof with respect to any part of
the Demised Premises similarly show any part of the Demised Premises to any
person contemplating the leasing of all or a portion of the same.
(d) Indemnify, and save harmless, Landlord and any mortgagee
and any lessor under any ground or underlying lease, and their respective
officers, directors, contractors, agents and employees, from and against any and
all liability (statutory or otherwise), claims,
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suits, demands, damages, judgments, costs, interest and expenses (including, but
not limited to, counsel fees and disbursements incurred in the defense of any
action or proceeding), to which they may be subject or which they may suffer by
reason of, or by reason of any claim for, any injury to, or death of, any person
or persons or damage to property (including any loss of use thereof) or
otherwise arising from or in connection with the use of or from any work,
installation or thing whatsoever done (other than by Landlord or its contractors
or the agents or employees of either) in the Premises prior to, during, or
subsequent to, the term of this Lease or arising from any condition of the
Premises due to or resulting from any default by Tenant in the performance of
Tenant's obligations under this Lease or from any act, omission or negligence of
Tenant or any of Tenant's officers, directors, agents, contractors, employees,
subtenants, licensees or invitees.
ARTICLE XXII
SUBORDINATION
Section 22.1. This Lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases on the real property of which Demised premises form a part, and to all
renewals, modifications, consolidations, replacements and extensions thereof,
provided that such ground leases or mortgages contain an appropriate
"non-disturbance" clause under which Tenant, in case of ground lease termination
or mortgage foreclosure, shall not be disturbed in its possession provided
Tenant continues in full compliance with Tenant's obligations under this Lease.
This clause shall be self-operative and no further instrument of subordination
shall be required by any mortgagee. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may request. Tenant
hereby constitutes and appoints Landlord the Tenant's attorney-in-fact to
execute any such certificate or certificates for and on behalf of Tenant in the
event the Tenant shall fail to execute any requested certificate within fifteen
(15) days after the date of the Landlord's request.
Section 22.2. Tenant agrees that neither the termination of any ground
or underlying lease nor the foreclosure of Landlord's leasehold interest in the
land and building of which the Demised premises are a part, or the institution
of any suit or proceedings by the Landlord under such ground or underlying lease
or by the holder of any such mortgage, shall by operation of law or otherwise
result in the cancellation or termination of this Lease or the obligations of
Tenant hereunder, and Tenant agrees to attorn to and recognize the Landlord
under such ground or underlying lease, or the holder of any such mortgage, as
the case may be, as Tenant's Landlord's hereunder in the event that such
landlord or mortgagee shall succeed to Landlord's interest in the Demised
premises, provided, however, that said successor in interest shall not be bound
by (i) any pre-payment of rent or additional rent for more than one month in
advance, except prepayments in the nature of security for the performance by
Tenant and Tenant's obligations under this Lease, or (ii) any amendment or
modification of this Lease made without the consent of the holder of any such
mortgage or such successor in interest.
Section 22.3. No surrender of such ground lease nor merger of all or
any part of the fee title of Landlord's building with such leasehold interest of
Landlord in Landlord's building shall result by operation of law or otherwise in
the cancellation or termination of this Lease or the obligations of Tenant under
this Lease, and Tenant covenants and agrees to attorn to the Owner from time to
time of all or any part of the fee title of Landlord's Building after such
surrender or merger.
ARTICLE XXIII
SURRENDER OF THE PREMISES
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Section 23.1. Except as otherwise herein provided, at the expiration of
the term, Tenant will peacefully yield up to Landlord the Demised premises,
broom clean, in as good order and repair as when delivered to Tenant, damage by
fire, casualty, war or insurrection or act upon the part of any governmental
authority, ordinary wear and tear, and damage by the elements excepted. Any
property left by Tenant in the Demised premises shall be deemed abandoned by
Tenant, except as otherwise provided in this Lease.
ARTICLE XXIV
ARBITRATION
Section 24.1 Whenever in this Lease disputes between Landlord and
Tenant are subject to arbitration, such arbitration shall be conducted in the
manner set forth in this Article XXIV.
Section 24.2. The party desiring arbitration shall give notice to that
effect to the other party and shall in such notice appoint a person of its
choice (interested or disinterested) as one of the arbitrators. Within fifteen
(15) business days thereafter, the other party shall by written notice to the
original party appoint a second person of its choice (interested or
disinterested) as an arbitrator. The arbitrators thus appointed shall appoint a
disinterested person, and such three arbitrators shall as promptly as possible
determine such matter.
Section 24.3. The arbitration shall take place in the State of
Connecticut and in accord with the laws of the State of Connecticut. Landlord
and Tenant shall each be entitled to present evidence and argument to the
arbitrators. The arbitrators shall have the right only to interpret and apply
the terms of this Lease and may not change any such terms or deprive any party
of any right or remedy provided in this Lease.
Section 24.4. The determination of the majority of the arbitrators
shall be conclusive upon the parties, and judgment upon same may be entered in
any court having jurisdiction thereof. The arbitrators shall give written notice
to the parties stating their determination and shall furnish to each party a
copy of such determination signed by them.
Section 24.5. In the event of the failure, refusal or inability of any
arbitrator to act, a new arbitrator shall be appointed in his stead, which
appointment shall be made in the same manner as hereinbefore provided for the
appointment of the arbitrator so failing, refusing or unable to act.
Section 24.6. As to any decision reached by arbitration which, pursuant
to the terms of this Lease, requires performance by either Landlord or Tenant,
Landlord and Tenant each covenant and agree to commence such performance
promptly after the date of such decision and to continue such performance to
completion with due diligence and in good faith. Landlord shall not make any
payment to Tenant or to anyone claiming through Tenant while there exists any
Event of Default or any other default on the part of Tenant which is not in the
process of being cured with due diligence and in good faith.
Section 24.7. The expenses of arbitration shall be borne equally by
Landlord and Tenant, except each party shall pay the fee and expenses of the
arbitration it appoints.
ARTICLE XXV
FORCE MAJEURE
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Section 25.1 Landlord and Tenant, respectively, shall not be in default
hereunder, if Landlord, or as the case may be, Tenant, is unable to fulfill or
is delayed in fulfilling any of its obligations hereunder, including without
limitation, any obligations to supply any service hereunder, or any obligation
to make repairs or replacements hereunder, if Landlord, or as the case may be,
Tenant, is prevented from fulfilling or is delayed in fulfilling such
obligations by reason of fire or other casualty, strikes or labor troubles,
governmental preemption in connection with a national emergency, shortage of
supplies or materials, or by reason of any rule, order or regulation or any
governmental authority, or by reason of the condition of supply and demand
affected by war or other emergency, or any other cause beyond its reasonable
control. Such inability or delay by Landlord or Tenant in fulfilling any of
their respective obligations hereunder shall not affect, impair or excuse the
other party hereto from the performance of any of the terms, covenants,
conditions, limitations, provisions or agreements hereunder on its part to be
performed, nor result in any abatement of rents or additional rents payable
hereunder.
ARTICLE XXVI
LEASE STATUS
Section 26.1 Upon request of the Landlord, the Tenant will, from time
to time, execute and deliver to the Landlord, instruments prepared by Landlord
stating, if the same be true, that this Lease is a true and exact copy of the
lease between the parties hereto, that there are no amendments hereof (or
stating what amendments there may be), that the same is then in full force and
effect and that, to the best of Tenant's knowledge, there are then no offsets,
defenses or counterclaims with respect to the payment of rent reserved hereunder
or in the performance of the other terms, covenants and conditions hereof on the
part of the Tenant to be performed, and that as of such date no default has been
declared hereunder by either party hereto and that the Tenant at the time has no
knowledge of any facts or circumstances which it might reasonably believe would
give rise to a default by either party.
ARTICLE XXVII
NO BROKER
Section 27.1. Tenant covenants, warrants and represents that there was
no broker instrumental in consummating this Lease, and that no conversations or
prior negotiations were had with any broker concerning the renting of the
Demised Premises.
Tenant agrees to hold Landlord harmless and indemnify Landlord from all
losses, damages, liabilities, costs and expenses including legal fees arising
out of or in connection with any claims for brokerage commission.
Landlord represents that no broker has any exclusive listing in
connection with the Building or any part thereof.
ARTICLE XXVIII
HOLDOVER
Section 28.1. In the event the Tenant holds over after the expiration
or earlier termination of this Lease without written consent of the Landlord,
the Tenant shall:
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(a) Pay, as liquidated damages, the amount equal to three times the
then applicable per diem rental for each day the tenancy is held over, and
(b) Indemnify and save harmless the Landlord from any and all
liability, charges, penalties, judgments or claims arising from any other tenant
or prospective tenant to whom Landlord has leased all or any part of the Demised
Premises effective upon the expiration or termination of this Lease.
ARTICLE XXIX
NOTICES
Section 29.1. All notices, demands, and requests under this Lease shall
be in writing and shall be sent by United States registered or certified mail,
postage prepaid, return receipt requested, and addressed as follows:
To Tenant: Ophthalmic Physicians and Surgeons, P.C.
40 Cross Street Norwalk, CT
President
Attention:
To Landlord: Cross Street Medical Building Partnership 40
Cross Street
Norwalk, Connecticut
Attention: Managing Partner
Either party may, by notice given to the other party, designate a new address to
which notices, demands and requests shall be sent and, thereafter, any of the
foregoing shall be sent to the address most recently designated by such party.
Notices, demands and requests which shall be served upon Landlord or Tenant in
the manner aforesaid shall be deemed to have been served or given for all
purposes under this Lease at the time such notice, demand or request shall be
mailed by United States registered or certified mail as aforesaid, in any post
office or branch post office regularly maintained by the United States
Government.
ARTICLE XXX
CHANGES OR ALTERATIONS BY LANDLORD
Section 30.1. Landlord reserves the right to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Building (including the Premises) and the fixtures and equipment thereof, as
well as in or to the street entrances, halls, passages, elevators, escalators,
stairways and other parts thereof, and to erect, maintain and use pipes, ducts
and conduits in and through the Premises, all as Landlord may deem necessary or
desirable; provided, however, that there be no unreasonable obstruction of the
means of access to the premises or unreasonable interference with the use of the
Demised Premises. Nothing contained in this Article shall relieve Tenant of any
duty, obligation or liability of Tenant with respect to making any repair,
replacement or improvement or complying with any law, order or requirement of
any governmental or other authority.
Section 30.2. There shall be no allowance to Tenant for a diminution of
rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business
<PAGE>
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arising from Landlord, Tenant or others making any changes, alterations,
additions, improvements, repairs or replacements in or to any portion of the
Building or the Premises, or in or to fixtures, appurtenances or equipment,
thereof, and no liability upon Landlord for failure of Landlord or others to
make any changes, alterations, additions, improvements, repairs or replacements
in or to any portion of the Building or the premises, or in or to the fixtures,
appurtenances or equipment thereof.
ARTICLE XXXI
RIGHT OF MORTGAGEE TO CURE DEFAULTS OF LANDLORD
Section 31.1. Tenant shall give to Landlord's mortgagee a copy of any
notice of default served upon Landlord. If Landlord shall have failed to cure
such default within the time provided for in this Lease, then Landlord's
mortgagee shall have an additional thirty (30) days within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days the
Landlord's mortgagee has commenced and is diligently pursuing the remedies
necessary to cure such default, in which events this Lease shall not be
terminated while such remedies are being so diligently pursued.
Tenant will accept performance by any such Landlord's mortgagee.
ARTICLE XXXII
ENTIRE AGREEMENT, ETC.
Section 32.1. This Lease and the Exhibits attached set forth the entire
agreement between the parties. Any prior conversations or writings are merged
herein and extinguished. No subsequent amendment to this Lease shall be binding
upon Landlord or Tenant unless reduced to writing and signed by Landlord and
Tenant. Submission of this Lease for examination does not constitute an option
for the Demised Premises and becomes effective as a lease only upon execution
and delivery thereof by Landlord to Tenant.
ARTICLE XXXIII
ASSIGNS
Section 33.1. The covenants, conditions and agreements contained in
this Lease shall bind and insure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors and,
except as otherwise provided in this Lease, their assigns.
ARTICLE XXXIV
DEFINITIONS
Section 34.1. The word Landlord as used in this Lease means only the
Owner for the time being of Landlord's interest in this Lease. In the event of
any assignment of Landlord's interest in the Lease, the assignor in each case
shall no longer be liable for the performance or observance of any agreements or
conditions on the part of the Landlord to be performed or observed all such
obligations under the Lease to be those of the Owner from time to time of
Landlord's interest in this Lease.
<PAGE>
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Section 34.2. Allied health professionals, as used in this Lease, shall
be deemed to include only those individuals holding a medical degree, a degree
in dentistry or individuals trained as specialists or technicians in physical
therapy.
ARTICLE XXXV
SECURITY DEPOSIT
Section 35.1. Tenant has agreed to deposit with Landlord $37,814.83,
(or an irrevocable letter of credit from a banking institution duly licensed in
the State of Connecticut in like amount) as a security deposit for the full and
faithful performance by the Tenant of all the terms, covenants, and conditions
of this lease upon the Tenant's part to be performed, which said sum shall be
returned to the Tenant without interest, after the time fixed at the expiration
of the term herein, provided the Tenant has fully and faithfully carried out all
of said terms, covenants, and conditions on Tenant's part to be performed.
Landlord shall have the right to apply any part of said deposit to cure any
default of Tenant, and if Landlord does so, Tenant shall, upon demand, deposit
with Landlord the amount so applied so that Landlord shall have the full deposit
on hand at all times during the term of this lease. In the event of a sale of
the premises, subject to this lease, the Landlord shall have the right to
transfer the security to the vendee and the Landlord shall be considered
released by the Tenant from all liability for the return of such security and
the Tenant shall look to the new landlord solely for the return of the said
security, and it is agreed that this shall apply to every transfer or assignment
made of the security to a new landlord. If the security deposit or letter of
credit is transferred to an assignee, notice of same shall be. sent to Tenant.
The security deposited under this lease shall not be mortgaged, assigned, or
encumbered by the Tenant without the written consent of the Landlord, and any
attempt to do so shall be void.
ARTICLE XXXVI
ACCIDENTS TO PLUMBING AND OTHER SYSTEMS
Section 36.1. Tenant shall give to Landlord prompt written notice of
any damage to, or defective condition in, any part or appurtenance of the
Building's plumbing, electrical, heating, air conditioning or other Systems
serving, located in, or passing through, the premises. Any such damage or
defective condition shall be remedied by Landlord with reasonable diligence, but
if such damage or defective condition is caused by, or resulted from the use by,
Tenant or by the employees, agents, licensees or invitees of Tenant, the cost of
the remedy thereof shall be paid by Tenant. Tenant shall not be entitled to
claim any damages arising from any such damage or defective condition unless the
same shall have been caused by the negligence of Landlord in the operation or
maintenance of the premises or Building and the same shall not have been
remedied by Landlord with reasonable diligence after written notice thereof from
Tenant to Landlord; nor shall Tenant be entitled to claim any eviction by reason
of any such damage or defective condition unless the same shall have rendered
the premises untenantable and the premises shall not have been made tenantable
by Landlord within a reasonable time after written notice thereof from Tenant to
Landlord.
ARTICLE XXXVII
WAIVERS BY TENANT
Section 37.1. Tenant, for Tenant, and on behalf of any and all firms,
corporations, associations, persons or entities claiming through or under
Tenant, including creditors of all
<PAGE>
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kinds, does hereby waive and surrender all rights and privileges which they or
any of them might have under or by reason of any present or future law to redeem
the Premises or to have a continuance of this Lease for the full term hereby
demised after Tenant is dispossessed or ejected therefrom by process of law or
under the terms of this Lease or after the expiration or termination of this
Lease as herein provided or pursuant to law.
ARTICLE XXXVIII
WAIVER OF TRIAL BY JURY
Section 38.1. It is mutually agreed by and between Landlord and Tenant
that, except in the case of any action, proceeding or counterclaim brought by
either of the parties against the other for personal injury or property damage,
the respective parties hereto shall and they hereby do waive trial by jury in
any. action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, and any emergency statutory or any other statutory
remedy.
ARTICLE XXXIX
SEVERABILITY
Section 39.1. If any term or provision of this Lease or the obligation
hereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be in force to the fullest extent
permitted by law.
ARTICLE XL
GOVERNING LAW
Section 40.1. This Lease shall be governed exclusively by the
provisions hereof and by the laws of the State of Connecticut, as the same may,
from time to time, exist.
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IN WITNESSES WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
Signed, sealed and delivered in the presence of:
CROSS STREET MEDICAL BUILDING
PARTNERSHIP
GENERAL PARTNER
------------------------------
/s/ By: /s/
------------------------------ ---------------------------
, GENERAL PARTNER
/s/ OPHTHALMIC PHYSICIANS AND
------------------------------ SURGEONS, P.C.
By: /s/ Stuart Aaron
------------------------------ ---------------------------
STUART AARON, President
<PAGE>
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STATE OF CONNECTICUT )
) ss: , 1987
COUNTY OF FAIRFIELD )
Personally appeared
as a partner of CROSS STREET MEDICAL BUILDING PARTNERSHIP, signer and sealer of
the foregoing instrument, and acknowledged the same to be his free act and deed
and the free act and deed of said partnership before me.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------
Notary Public
My Commission expires: _______
STATE OF CONNECTICUT )
)ss: , 1987
COUNTY OF FAIRFIELD )
Personally appeared STUART AARON, who acknowledged himself to be the
President of OPHTHALMIC PHYSICIANS AND SURGEONS, P.C., a corporation, and that
he as such President, being authorized so to do executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------
Notary Public
My Commission expires: _______
<PAGE>
EXHIBIT B
DESCRIPTION
All that certain piece, parcel, or tract of land, with any improvements
thereon, situated in the City of Norwalk, County of Fairfield, and State of
Connecticut( laid down and delineated as Parcel A on a certain map entitled,
"Map of Conveyance from Cross Street Medical Building Partnership to Anthony &
Elsie George, Norwalk, Connecticut", Scale 1" 30', June 28, 1985, which map is
on file in the Norwalk Town Clerk's Office as Map No. 9846, as amended by a
certain map entitled "Map of Property prepared For Raj Snellman, Norwalk,
Connecticut", Scale 1" 20', August 14, 1986, which map is on file in the Norwalk
Town Clerk's Office as Map No. 10238.
<PAGE>
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EXHIBIT C
Preparation of Demised Premises
"Tent Work"
For Initial Occupancy Only
This Exhibit C shall govern the preparation of the Demised Premises for
occupancy by the Tenant:
PART I Plans and Specifications
(A) Tenant shall submit to Landlord within ten (10) business days of
Tenant's execution of the Lease a space layout plan indicating with reasonably
accurate dimensions the square footage allocation and location in the Demised
Premises of all individual offices, conference rooms, clerical and file storage,
reception, and any other specified areas, together with full supporting
information as to any specialized electrical, mechanical, or telephone equipment
(such space layout plan and supporting information hereinafter collectively
defined as the "Space Plan"). The Space Plan shall incorporate any and all
drawings, schedules, or other information necessary for the subsequent
preparation of the Premises Plans as defined in Paragraph B below. If Tenant so
requests in writing not later than the date of execution of this Lease,
Landlord's Architect will, at Tenant's expense, assist Tenant or its agents and
consultants in the preparation of the Space Plan. Notwithstanding any other term
or provision of this Lease, if the Space Plan is not submitted by Tenant to
Landlord by October 1, 1987, the Actual Commencement Date of the Lease shall be
deemed to be December 1, 1987.
(B) The Demised Premises shall be prepared for Tenant's occupancy in
accordance with a comprehensive and complete set of architectural, electrical
and mechanical drawings and specifications, schedules, and other pertinent
information (hereinafter collectively defined as the "Premises Plans"), which
Premises Plans shall be consistent with the Space Plan previously submitted by
Tenant to Landlord. In the event the scope of work as contemplated in the
Premises Plans exceeds that as set forth in the Space Plan, Landlord reserves
the right to claim a delay as a result of a delay in the commencement of the
term as herein provided. The Premises Plans, if based on a Space Plan not having
special, unusual, or unique requirements, shall be prepared. at Landlord's
expense by an Architect selected by Landlord, and by an Engineer selected by
Landlord, (herein collectively defined as "Landlord's Architect"). A reasonable
charge shall be made to Tenant for special, or unusual, or unique requirements
in the Premises Plan.
(C) The Premises Plans shall include without limitation, complete
architectural, mechanical, electrical, and all other drawings or specifications
for all work to be performed in the Demised Premises including partitions,
ceilings, lighting layouts, electrical outlets, color choices, finishing
schedules, telephone requirements, special electrical or mechanical
requirements, special equipment installations, and any and all other pertinent
information necessary to prepare the Demised Premises for Tenant's occupancy.
The Premises Plans shall be consistent with all applicable building codes with
the design, structural capabilities, construction and equipment in the Building.
(D) During the preparation of the Premises Plans, Tenant shall provide
full cooperation to the Landlord's Architect with respect to the provision of
information and facts pertinent to the Tenant's requirements. Landlord shall
submit to Tenant for Tenant's approval the following items as soon as
practicably possible:
(i) Two sets of the Premises Plans and any supporting or explanatory
information, and
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(ii) A preliminary budget (the "Preliminary Budget") of the cost of the
Tenant Work, as defined in Part II of this Exhibit C below, for the materials,
equipment, and work, designated in the Premises Plans. The Preliminary Budget
shall contain an estimate prepared by Landlord, in conjunction with a general
contractor, of all items of cost incorporated in the Premises Plans including,
without limitation, direct construction costs of material and labor for each
trade, on-site supervision and clean-up, permits and fees payable to the general
contractor. Within five (5) days following receipt by Tenant from Landlord of
the Premises Plans and the Preliminary Budget, Tenant shall either (i) evidence
in writing to Landlord its approval and acceptance of the Premises plans and the
Preliminary Budget and return to Landlord one complete set of the Premises Plans
and Preliminary Budget appropriately initialed by a representative of the Tenant
on each sheet or page or (ii) request Landlord in writing to make any
modifications to the Premises Plans, and any related changes to the Preliminary
Budget. Landlord shall promptly submit the revised Premises Plans and
Preliminary Budget to Tenant, and Tenant shall within five (5) business days of
receipt of the revisions from Landlord evidence its approval in writing to the
Landlord of the revised Premises Plans and Preliminary Budget.
If Tenant fails to evidence in writing its final approval of both the
Premises Plans and Preliminary Budget within 10 days of receipt of the Premises
Plans and Preliminary Budget, by Tenant, then notwithstanding any other term or
provision of the Lease, the Actual Commencement Date of the Lease shall be
deemed to be December 1, 1987, unless delivery of the Premises Plans and
Preliminary Budget by Landlord is delayed past November 15, 1987.
Tenant herewith designates the following individual as its authorized
agent or representative (pound)0 review and approve the Premises Plans and
Preliminary Budget: Stuart Aaron, M.D.
(E) The Premises Plans approved by Tenant shall be sufficiently
complete and contain information to enable the Landlord to obtain all necessary
approvals from appropriate governmental agencies or authorities to permit the
installation of the work required by the Premises Plans in the Demised Premises.
Landlord shall, at Tenant's expense, file the Premises Plans with the
appropriate public authorities for approval and issuance of all building
permits.
PART II Installation of Tenant Work
(A) All materials, labor, equipment and work incorporated in the
approved Premises Plans, shall hereafter be defined as "Tenant Work". Tenant
shall upon execution of the Lease be deemed to have contracted with Landlord to
furnish all Tenant Work.
(B) The furnishing and installation of all Tenant Work shall be in
complete accordance with the Premises Plans. Landlord will install the Tenant
Work with reasonable speed and diligence and in a workmanlike fashion. The
installation of all Tenant Work will be scheduled during normal business hours
and undertaken in a manner which will not disrupt or impede the occupancy or
quiet enjoyment of any space in the Building by any other Tenant. Landlord and
its contractors shall handle and install all materials and equipment in a
responsible fashion and Landlord or its agents will be responsible for complete
clean-up and removal from the Building of all waste and debris resulting from
the installation of Landlord's Work and Tenant's Work. All Tenant Work shall be
performed in full accordance with all applicable laws and codes of the City of
Norwalk, or any other authority having jurisdiction.
(C) Following installation of the Tenant Work by Landlord and its
agents, Landlord will submit an invoice, together with supporting information,
to Tenant for the cost to Landlord of the Tenant Work. Landlord's cost
(hereafter "Landlord's Cost") shall include (i) all sums paid by Landlord to its
general contractor, including the cost of general contractor's on-site
supervision and general contractor's overhead and profit fee equal to twenty
(20%) percent of the
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work performed by the general contractor, (ii) all sums paid by Landlord to any
other subcontractors or agents, (iii) all sums paid by Landlord for building
permits or other municipal application or inspection fees, and (iv) any other
sums paid by Landlord for installation or clean-up and removal of debris in
connection with the Tenant work. Landlord shall deduct from the Landlord's Cost
invoice submitted to Tenant an amount (the "Tenant Work Credit") equal to thirty
($30.00) dollars per square foot of gross leaseable area of Demised Premises
under this Lease. Tenant shall pay the amount of the invoice (less the Tenant
Work Credit) for Landlord's Cost of Tenant Work in full within thirty (30) days
of the date of the invoice. The Tenant shall pay interest at the rate of one and
one-half per cent (1-1/2%) per month for all amounts not paid within thirty (30)
days after the date of the invoice. Failure to pay shall be an event of default
under this Lease.
(D) Notwithstanding the provisions of the foregoing paragraph C of this
Part II, Landlord may elect, following completion of at least fifty (50%)
percent of the Tenant work, to submit one or more interim invoices to Tenant for
those portions of the Tenant Work completed at the invoice dates, less in each
case the following amounts:
(i) The Tenant Work Credit,
(ii) A retainage of (20%) percent of the gross amount of the
Tenant Work completed at the invoice date. All sums paid by Tenant to Landlord
pursuant to any interim invoices shall be deducted from the amount due to
Landlord in accordance with the final invoice for Landlord's Cost of Tenant Work
as set forth in Paragraph C of this Part II above.
(E) subsequent to the approval by Tenant of the Premises Plans and
preliminary Budget, and at any time prior to the completion of the Tenant Work,
Tenant may request Landlord in writing to modify, add to, or delete items of
work incorporated in the Premises Plans. Such changes requested by Tenant
(hereafter referred to as "Change Order") shall be reasonable in scope and fully
consistent with the structural capabilities and equipment in Landlord's
Building. Landlord's Architect shall promptly, at Tenant's expense, reflect the
Change Order by revising the Premises Plans, and Landlord shall alter the Tenant
Work to incorporate the Change Order. The cost of any such Change Order will be
reflected as either an increase or decrease, as appropriate, in the final
invoice for Landlord's Cost of Tenant Work submitted pursuant to paragraph C
above, which Landlord's Cost shall include an additional charge of ten percent
(10%) for overhead and five percent (5%) for profit. Notwithstanding the
foregoing, the number of calendar days of additional time reasonably required by
Landlord to process and implement any Change Order will be deducted from the
Actual Commencement Date to be determined under this Lease, and the Actual
Commencement Date shall be on such date as may reasonably have been expected to
occur in the absence of such Change Order (5).
(F) All installations, alterations, additions, or other improvements to
the Demised premises, including all pipes, ducts, conduits, wiring, paneling,
partitions, and similar items, shall become-the property of Landlord and shall
be surrendered with the Demised premises as a part thereof at the expiration or
earlier termination of the Lease. Movable office furniture and trade fixtures
which are installed by Tenant at its own expense shall remain the property of
Tenant, and may be removed at any time provided that Tenant promptly repairs any
damage caused by such removal.
(G) Landlord shall furnish and install a Building directory in the main
lobby on which all Tenants in the 'Building will be entitled to be listed.
Landlord shall furnish and install the initial listings at its sole cost and
expense. Any changes or additional listings shall be furnished and installed at
Tenant's cost and expense.
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(H) Tenant, at its sole cost and expense, shall furnish and install its
own identification sign on the entrance door to its Demised premises. The design
and installation of the identification sign shall be reasonably uniform
throughout the Building and must be approved by Landlord, such approval not
being unreasonably withheld.
(I) Tenant will be required to schedule its initial occupancy of the
Demised premises, including all furniture, furnishings, equipment, supplies and
other property, either (i) during one weekend between Friday 6 p.m and Monday 8
a.m, or (ii) during one weekday night between 6 p.m. and 8 a.m. Tenant shall
provide Landlord with reasonable advance notice of its scheduled initial
occupancy. Landlord shall provide air conditioning, lighting, electric service,
elevator service and, if requested, the services of porters, such services to be
at the Tenant's sole cost and expense. Landlord shall not be obligated to
provide security during Tenant's initial moving-in period of the Demised
premises.
(J) Within fifteen (15) days after the date of the commencement of the
term, Tenant's architect shall prepare and submit to Landlord (with a duplicate
copy to the Tenant) a complete and final punch list specifying all minor items
of work to be rectified. Landlord shall promptly cause such, items a. are its
responsibilities to be remedied within fifteen (15) days of the receipt of said
punch list. Landlord shall not be obligated to rectify items on any punch list
submitted to the Landlord later than fifteen (15) days after the date of the
commencement of the term.
Landlord does not assume liability for damage arising from the acts of
third parties in the employ of Tenant.
(K) The HVAC system in the building shall consist of suspended heat
pump units. Landlord shall furnish and install heat pumps unit to heat, cool,
and. ventilate the Tenant Demised Premises. The system shall maintain the
following temperatures and relative humidities throughout the Demised Premises:
(i) in the cooling season, interior conditions of not
more than 78 degrees F., Dry Bulb, and 50 percent
relative humidity when the outside temperature is not
more than 95 degrees F., Dry Bulb, and 75 degrees F.,
Wet Bulb; and
(ii) in the heating season, not less than 70 degrees F.
when the outside temperature is not less than 0
degrees F.
(L) Uniformed window blinds on all windows throughout the Building
shall be selected by the Landlord, installation is part of Tenant Work, and may
not be changed in appearance or design unless changed by Landlord uniformly
throughout the building.
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EXHIBIT C-I
ADDENDA TO EXHIBIT C
INSTRUCTIONS TO TENANT CONTRACTORS
(1) It shall be Tenant's contractor's responsibility to schedule the
performance of his work and notify the Landlord's Project Manager of his
proposed schedule, so that the contractor's elevator usage for material
deliveries and rubbish removal may be coordinated with the over-all project
(reserved) hoisting usage.
(2) The Tenant's contractor shall notify Landlord's Project Manager at
least four (4) weeks prior to his proposed starting date to perform Tenant's
Work and at that time will discuss the arrangements and requirements of his
schedule. At this contract time, Landlord's project Manager would like to cover
the following items to determine reservation time schedule:
(a) Material delivery schedule--dates--times.
(b) Number of vehicles
(c) Elevator Service and hoist reservation time.
(d) Docking arrangements and reservation time.
(e) Insurance requirements.
(f) Names and telephone numbers of contacts and coordinators.
(g) General instructions--rules and regulations.
(3) The Tenant's Contractor shall confirm his schedule with the
Landlord's Project Manager, not less than 48 hours in advance of his
pre-scheduled material deliveries. It shall be Tenant's contractor's sole
responsibility to confirm his reservation times, and in the event that this
confirmation is NOT verified and re-executed it shall be deemed that his
reservations are to be voided (cancelled) and allocated to others. He shall then
be required to reschedule both his deliveries and his reservations through the
Landlord's Project Manager. In all fairness to the other Tenants going into the
building, if Tenant's contractor fails to meet or confirm this date this
contractor will have to wait until there is free time in the material delivery
and hoisting schedule before they will be allowed to perform Tenant Work.
Landlord's Project Manager will make every effort to accommodate the Tenant's
contractor as early as possible, but it is very likely that to reschedule would
effect a serious time delay; you can clearly see, then, that it is extremely
important to confirm the schedule not less than 48 hours in advance, and if
possible, preferably three to five days ahead of time.
(4) Tenant and its contractors shall remain responsible for the
scheduling and transportation of materials and equipment used in the performance
of Tenant's work, and for the removal from the Building of waste and debris
resulting from the performance of Tenant's Work, and Landlord shall not be
responsible for coordination of the work of Tenant's contractors with the work
of Landlord's contractors. However, Landlord and Tenant shall cooperate in their
respective performances of Landlord's Work and Tenant's Work in order to enable
the same to be properly coordinated. Tenant shall not be under any obligation to
employ any of Landlord's contractors or to pay any charge to any of them by
reason of Tenant having other contractors or purchasing any materials or labor
or employing any labor from other sources, Tenant and its contractors shall not
be under any obligation to pay for water, electricity, heat, ventilation or
cooling provided in the premise during the performance of any of Tenant's Work
during normal working hours of the Building construction project.
(5) Temporary staging of materials and equipment in public areas is not
permitted.
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(6) Should large equipment or materials need to be transported via
dailies and/or carts, then contractor shall protect all routes over finished
floors with a minimum of 3/8" plywood runway, which will be picked up at the
close of work each day.
(7) All areas traveled are to be broom cleaned at the close of each
day. Elevators are to be swept and debris carried from the car, NOT swept across
the door opening.
(8) Workmen should use the toilet facilities provided by the general
contractor.
(9) The hoisting load limit in the passenger elevator is NOT to be
exceeded.
(10) All packing and crating materials must be removed at the end of
each day, and not be left to accumulate over night (fire hazard)
(11) The Tenant's contractor must utilize labor that will work in
harmony with other labor in the Building. In addition, Landlord's Project
Manager should receive not later than two weeks prior to contractor's
performance of Tenant's Work, insurance certificates evidencing the following
minimum coverages:
Workmen's Compensation Insurance - Statutory Limit Comprehensive Public
Liability:
Property Damage Coverage - Minimum - $ 50,000.00
Bodily Injury or Death
One person- Minimum - $250,000.00
More than one person- Minimum - $500,000.00
All certificates are to be stipulated that 10 days' prior notice of
cancellation will be given to the Tenant and to the Landlord.
<PAGE>
-36-
EXHIBIT D
CLEANING SCHEDULE
GENERAL CLEANING
Daily:
1. Empty normal waste from receptacles, removing waste to designated
location for disposal.
2. Sweep and dust mop all uncarpeted floors. Vacuum all rugs and carpeted
areas.
3. Hand dust all office furniture, paneling and window sills.
4. Damp clean all glass desk tops.
5. Empty and wash clean all ashtrays and receptacles.
6. Wash clean all water fountains and coolers, emptying all wastes.
7. Keep cigarette urns clean.
8. Dust and wipe clean all sand urns.
9. Hand dust all mouldings, chair rails, baseboards and trim as necessary.
10. Spot clean all partitions and doors.
11. Damp dust all telephone equipment whenever necessary.
12. Remove all hand marks from around light switches.
13. On completion of work all slop sinks, locker areas, etc., shall be
thoroughly cleaned and cleaning equipment stored in a central location.
14. All lights shall be extinguished, all windows closed, and all doors
shall be locked after cleaning is completed.
CORE LAVATORIES
Nightly:
1. Mop, rinse and dry floors; polish mirrors, wash shelves, clean enamel
surfaces; wash basins, urinals, and bowls, using scouring powder to
remove stains, making certain to clean under sides of rim on urinals
and bowls.
2. Wash both sides of all toilet seats with soap and water.
3. Damp rinse and wash with disinfectant tile walls near urinals.
<PAGE>
-37-
4. Fill toilet tissue dispensers in appropriate washrooms. Tissue to be
furnished by owner.
5. Wastepaper cans and receptacles are to be emptied and thoroughly
cleaned.
6. Install paper hand towels and liquid hand soap in core lavatories. Hand
towels and liquid soap to be supplied by owner.
CORE LAVATORIES
Monthly:
1. Wash all partitions, tile walls, and enamel surfaces.
2. Wash down walls in washrooms and stalls from trim to floor.
3. Dust all lighting fixtures.
GLASS CLEANING
All windows in premises shall be cleaned inside and out two (2) times per year.
QUARTERLY SERVICES
1. Dust all pictures, frames, charts, graphs and similar wall
hangings. -
2. Dust exterior of light fixture diffusers.
<PAGE>
-38-
EXHIBIT E
RULES AND REGULATIONS
The Tenant covenants and agrees with the Landlord to obey the following Rules
and Regulations:
1. The sidewalks, entrances., passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than ingress and egress to and from the
Demised Premises.
2. No curtains, blinds, shades, or screens shall be attached to or hung
in, or used in connection with, any window or door of the Demised premises,
without the prior written consent of the Landlord.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted, or affixed by any Tenant on any part of the
outside or inside of the Demised Premises or building without the prior written
consent of the Landlord. Interior signs on doors and directory tablet shall be
inscribed, painted or affixed for each Tenant by the Landlord at the expense of
such Tenant, and shall be of a size, color and style acceptable to the Landlord.
4. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light and air into the halls, passageways or other public places in the
building, shall not be covered by any Tenant nor shall any bottles, parcels, or
other articles be placed on the window sills.
5. No show cases or other articles shall be affixed to any part of the
exterior of the building, nor placed in the halls, corridors, or vestibule.
without the. prior written consent of Landlord.
6. The water, wash closets and plumbing fixtures shall not be used for
any purposes other than those for which constructed; no sweepings, rubbish, rags
or other substances shall be thrown therein. All damage resulting from any
misuse of fixtures shall be borne by Tenant who, or whose servants, employees,
agents, visitors or licensees, shall have caused the same.
7. No Tenant shall mark, paint, drill into,. or in any way deface any
part of the Demised Premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of the Landlord, and as the Landlord may direct. No Tenant shall
lay linoleum, or other similar floor covering, so that the same shall come in
direct contact with the floors of the Demised Premises, and, if linoleum or
other similar floor covering is desired to be used, an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use of cement or other similar adhesive material
being expressly prohibited.
8. No bicycles, vehicles, or animals of any kind shall be brought into,
or kept in or about the premises, and no cooking shall be done or permitted by
any Tenant on said premises. No Tenant shall cause or permit any objectionable
odors to be produced upon premises.
9 No space in the building shall be used for manufacturing, for the
storage of merchandise or for the sale of merchandise, goods, or property of any
kind at auction.
10. No Tenant shall make or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those
<PAGE>
-39-
having business with them, whether by these or any musical instrument, radio,
talking machine, unmusical noise, whistling, singing, or in any other way. No
Tenant shall throw anything out of the doors, windows, or skylights, or down the
passageways.
11. No Tenant nor any of Tenant's servants, employees, agents, visitors
or licensees, shall at any time bring or keep upon the Demised Premises, any
flammable, combustible or explosive fluid, chemical or substance.
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any Tenant, nor shall any changes be made in existing
locks or the mechanism thereof. Each Tenant must, upon the termination of his
tenancy, restore to the Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys, so furnished, such Tenant shall pay to the Landlord, the
cost thereof.
13. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description, must take place during the hours
which the Landlord or its Agents may determine from time to time. The Landlord
reserves the right to inspect all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
14. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
15. The requirements of Tenants will be attended to only upon
application at the office of the building. Employees of the Landlord shall not
perform any or do anything outside of their regular duties, unless under special
instructions from the Landlord.
16. Canvassing, soliciting, and peddling in the building is prohibited
and each Tenant shall cooperate to prevent the same.
17. There shall not be used in any space, or in the public halls of any
building, either by any Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with soft tires
and side guards.
18. The schedule of holidays for the building shall be determined by
Landlord from time to time.
<PAGE>
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EXHIBIT E-1
ADDENDA TO EXHIBIT E
INSTRUCTIONS TO MOVING CONTRACTORS
(1) The directions of the Landlord and/or his managing agent will be followed at
all times
(2) No furniture and/or materials will be moved in or out of the building from
8:00 a.m. to 6:00. p.m., Monday through Friday, unless approved by the Landlord
and/or his managing agent.
(3) The moving contractor must submit, not later than two weeks prior to the
move, a written schedule which indicates the date and time the move will
commence and also the same for the completion of the move.
(4) All routes over finished floors will be protected with a minimum 3/8"
plywood runway, which is to be picked up at the close of work each day.
(5) Appropriate warning signs are to be posted in all public corridors and
lobbies used.
(6) Temporary staging of furniture and equipment in public areas is not
permitted.
(7) All areas traveled are to be broom cleaned at the close of each day.
Elevators are to be swept and debris carried from the car, NOT swept across the
door opening.
(8) Workmen should use the toilet facilities provided by the general contractor.
(9) The hoisting load limit in the passenger elevator is NOT to be exceeded.
(10) No more than two trailers will be allowed at the loading dock.
(11) Only rubber wheeled dollies and carts, in good operating condition, may be
used. Excess oil grease must be removed from wheels to prevent staining
flooring.
(12) Reasonable care must be taken at all times to avoid any personal injury or
property damage.
(13) All packing and crating materials must be removed at the end of each day,
and not be left to accumulate over night (fire hazard).
(14) The moving contractor must utilize labor that will work in harmony with
other labor in the building. In addition, Landlord's office should receive not
later than two weeks prior to move, insurance certificates evidencing the
following coverages:
Workmen's Compensation Insurance - statutory Limit
Comprehensive public Liability:
property Damage Coverage - Minimum - $ 50,000.00
Bodily Injury or Death
One person- Minimum - $250,000.00
More than one person- Minimum - $500,000.00
All certificates are to be stipulated that 10 days' prior notice of cancellation
will be given to the Tenant and to the Landlord.
<PAGE>
LEASE AGREEMENT
DATED: 9/1 , 1995
BETWEEN
FRENCH'S MILL ASSOCIATES
(LANDLORD)
AND
OPTICARE EYE HEALTH CENTER, P.C. - WATERBURY
(TENANT)
PROPERTY:
87 Grandview Avenue
Waterbury, Connecticut
<PAGE>
INDEX
PAGE
----
Demised Premises, Term, Option 1
Article I Rent 2
Article II Taxes, Assessments and Utilities 3
Article III Insurance 4
Article IV Condition of Premises 4
Article V Care of Premises 4
Article VI Alterations (With Related Insurance
Provisions) 6
Article VII Indemnity to Landlord 7
Article VIII Broker 8
Article IX Compliance With Governmental Requirements 8
Article X Assignment, Etc., of Lease 8
Article XI Loss or Destruction by Fire or Otherwise 9
Article XII Condemnation 10
Article XIII Termination of Lease for Nonpayment 10
Article XIV Termination of Lease Upon Certain Defaults 12
Article XV Re-Entry 12
Article XVI Reletting and Damages 13
Article XVII Waiver of Right of Redemption 14
Article XVIII Recovery of "Additional Rent" 14
Article XIX Mechanic's Liens 14
Article XX Remedial Rights 15
Article XXI Non-Waiver Provisions 15
Article XXII Title to Improvements 16
Article XXIII Non-Liability of Landlord 16
<PAGE>
Article XXIV Subordination 17
Article XXV Surrender at End of Term 17
Article XXVI Covenants and Conditions 18
Article XXVII Quiet Enjoyment 18
Article XXVIII Notices 18
Article XXIX Interpretation of Term "Landlord" 19
Article XXX Completeness of Instrument 19
Article XXXI Binding Successors in Interest 20
SCHEDULE A - Description of Premises
<PAGE>
THIS INDENTURE, made this 1st day of September , 1995, by and between
FRENCH'S MILL ASSOCIATES, a Connecticut general partnership having a principal
place of business in the City of Waterbury, County of New Haven and State of
Connecticut (hereinafter called "Landlord"), and OPTICARE EYE HEALTH CENTER,
P.C. - WATERBURY a Connecticut corporation having a principal place of business
in the said City of Waterbury, County of New Haven and State of Connecticut
(hereinafter called "Tenant").
WITNESSETH:
That the Landlord hereby leases and demises to the Tenant, and the
Tenant hereby hires and takes from the Landlord, upon the terms and conditions
hereinafter set forth, the entire building known as "French's Mill" and located
at property known as 87 Grandview Avenue, Waterbury, Connecticut, which property
is more particularly bounded and described as set forth in Schedule A attached
hereto and made a part hereof;
For the term of fifteen (15) years commencing September 1, 1995, and
terminating on August 31, 2010, to be used and occupied for the practice of
medicine and optometry, ambulatory surgery center, and incidental activities
such as the sale of glasses and corrective lenses offices and no other uses.
Furthermore, it shall be Tenant's sole obligation to obtain all licenses,
permits and franchises required by it for its use of the Demised Premises and no
failure to obtain the same, nor any revocation thereof by any governmental
authority of any such licenses, permits or franchises heretofore or hereafter
granted by any such governmental authority shall in any manner affect this Lease
or diminish the amount of rent or any other payments or charges payable by
Tenant hereunder.
Tenant shall have the option to extend this Lease for two (2)
additional terms of ten (10) years each, on the same terms and conditions as
herein provided. Said option shall be exercised by written notice from Tenant to
Landlord at least twelve (12) months prior to the expiration of the then
existing leasehold term. If Tenant holds over without having exercised said
option, this Lease shall be automatically extended for one (1) year, and
thereafter from year to year upon the same terms, subject in each instance to
adjustment of rental as hereinafter provided, unless and until either party
shall have terminated this Lease by giving to the other party written notice of
termination at least thirty (30) days before the expiration of the first or any
subsequent one year period.
And the Landlord and Tenant hereby agree upon the following terms,
covenants, conditions, restrictions and limitations affecting the said demised
premises, to wit:
ARTICLE I
RENT
Section 1. During the first five (5) years of the leasehold term, the
Tenant shall pay
<PAGE>
a minimum annual rental to the Landlord of SIX HUNDRED FOUR THOUSAND & 00/l00ths
DOLLARS ($604,000.00) payable in equal monthly installments of FIFTY THOUSAND
THREE HUNDRED THIRTY-THREE & 33/100ths DOLLARS ($50,333.33) each, on the first
day of each month in advance, and shall pay the "additional rent" hereinafter
provided for at the times and in the manner hereinafter provided for. Said rent,
unless and until further written notice, shall be paid to "French's Mill
Associates", 87 Grandview Avenue, Waterbury, CT 06708.
All other charges or obligations of the Tenant hereunder other than the
payment of minimum annual rent shall be considered "additional rent".
Section 2. The minimum annual rental shall be adjusted after the first
five (5) years of the leasehold term and every five (5) years thereafter,
including any option term exercised by Tenant, based upon the fair market value
appraisal of the rent on each adjustment date in accordance with the procedure
hereinafter set forth. In no case shall the adjusted rent be less than the then
existing rent.
Said adjustment shall be determined as follows:
Prior to the expiration of ninety (90) days from the commencement of
each adjustment period, Tenant shall deliver to Landlord a short form appraisal
report prepared by a recognized real estate appraiser who shall have the
designation MAI (Member American Institute of Real Estate Appraisers). Said
report shall contain the fair market value rent for the Demised Premises.
If Landlord does not wish to accept said adjusted rent as set forth in
said appraisal report, Landlord-shall have thirty (30) days to obtain his own
real estate appraisal prepared by an MAI appraiser on the same basis as set
forth hereinabove.
If the two appraisals are within ten percent (10%), then the appraisals
shall be averaged and the average shall constitute the adjusted rent.
If the two appraisals are not within ten percent (10%), then the two
appraisers shall meet and if such appraisers cannot agree upon a fair rental
value, such appraisers shall appoint a third MAI appraiser who shall have thirty
(30) days to prepare an appraisal report and the fair market value in said
report shall be binding upon the parties thereto and shall constitute the
adjusted rent,unless said third appraisal is less than the lower appraisal or
higher than the higher appraisal. In such event, it shall be added to the other
two and the adjusted rent shall be the average of all three.
In the event that the two appraisers cannot agree upon a third
appraiser, the selection shall be made by the American Arbitration Association.
2
<PAGE>
In the event that said appraisal procedure shall not be complete, for
any reason, prior to the commencement of any adjustment period, then in that
event, the pre-existing rent shall be paid until the procedure is complete and
the adjusted portion of the rent shall be paid retroactively to the commencement
of the adjustment period. Said retroactive payment shall be made within ten (10)
days of the resolution of the rent adjustment procedure.
Notwithstanding anything to the contrary, in the event that either
party does not provide an appraisal report within the time periods set forth,
then, in that event, the rent for the adjustment period for which the reports
are required shall be as set forth in whichever appraisal report has been
provided. It is understood that time is of the essence in providing said
reports.
It is agreed that each party shall pay for its own appraisal report and
in the event a third appraisal is necessary, the costs thereof shall be borne
equally.
ARTICLE II
TAXES. ASSESSMENTS AND UTILITIES
Section 1. The Tenant shall bear, pay and discharge punctually as and
when the same shall become due and payable throughout the term of this lease all
such taxes, duties, assessments, governmental impositions and also all such
water rates, rents or charges (whether imposed annually or measured according to
quantity of water consumed, including all charges for installing and repairing
water meters now or hereafter required to be installed in any part of the
demised premises), as shall or may during the terms of this Lease be laid,
levied, assessed or imposed upon, or become due or payable, or liens upon or
chargeable, against the demised premises or any part hereof or the sidewalks or
streets adjoining or in front thereof, or against the owner or occupant of the
demised premises or both, save and except that as to the fiscal tax years of
which part of the first year and part of the last year of the term hereby
granted are parts, the Tenant shall bear and pay only that proportionate part of
the taxes for each of said fiscal tax years which the period of the term
hereunder occurred during each of the said fiscal tax years bears to an entire
year.
Section 2. The Tenant shall have the right to contest, or review, by
legal proceedings, or in such other manner as it may deem suitable (which, if
instituted, shall be conducted promptly, in its own name or the name of the
Landlord, or both, but at the Tenant's own expense and free of all expense to
the Landlord), any tax, duty, assessment, governmental imposition, water rates,
rent, or charges, above referred to, upon condition that within the time limited
by this Lease for the payment of such tax, assessment, water rents, or other
charges, the same are paid.
Section 3. The Tenant shall be solely responsible for the cost of all
utilities, including heat, air conditioning, light, power, gas, water and the
heating of hot water.
3
<PAGE>
ARTICLE III
INSURANCE
Section 1. The Tenant, at its own expense and cost, will keep all
buildings on the demised premises (exclusive of excavations and foundations) and
all fixtures (except such trade fixtures as the Tenant, pursuant to the terms of
this Lease, has the right to remove) insured against loss or damage from the
perils insured against under a standard policy issued in the State of
Connecticut for fire and extended coverage insurance, for the full insurable
value thereof, except for a deductible amount selected by Tenant for which
amount Tenant shall be responsible directly for payment for repairs not subject
to insurance because of the aforesaid deductible, in companies duly authorized
by the State of Connecticut to do business in said state, and which the Landlord
agrees to approve unless it is reasonable to withhold such approval. All such
insurance shall be in the name of the Landlord and the Tenant, and, if so
required by the Landlord, also in the name of the holder or holders of any
mortgage or mortgages on the demised premises as their respective interests may
appear, and the policies therefor shall be subject to the approval of the
Landlord as to terms hereof (provided, however, that the Landlord shall not be
entitled to object to the inclusion or exclusion of any deductible provision or
other terms or provisions if the inclusion or exclusion of such terms or
provisions be required by the laws of the State of Connecticut) . A Certificate
of Insurance shall be delivered to the Landlord, and the loss, if any, shall be
made payable to the Landlord, Tenant, or mortgagee, as their interests may
appear. The Tenant shall pay the premiums upon all such policies and all other
charges incidental to effecting such insurance. Ten (10) days' written notice of
cancellation or reduction of insurance shall be given to the Landlord. On
default in maintaining the aforesaid insurance, the Landlord may procure its own
policies of insurance and pay the premiums thereon, and the amount of such
payment and expense shall be repaid by the Tenant on demand or may be added to
and become additional rent, with the rights and remedies for the collection and
enforcement thereof in this Lease provided.
Landlord and Tenant waive rights to recover (except as otherwise
provided in this Section regarding the deductible) from each other for any
damage or loss from the perils insured against under a standard fire and
extended coverage policy issued in the State of Connecticut, even though such
damage or loss results from the negligence of either Landlord or Tenant.
ARTICLE IV
CONDITION OF PREMISES
Section 1. The Tenant shall take the premises in "as is" condition.
ARTICLE V
CARE OF PREMISES
4
<PAGE>
Section 1. Throughout the term of this lease, the Tenant shall, at its
own cost and expense, take good care of and keep in good order and repair,
inside and out, all buildings and structures which are now or shall hereafter be
constructed on or appurtenant to the demised premises and the roofs, walls and
foundations thereof, and all fixtures and appurtenances therein and thereto and
all equipment thereof, including, but not being limited to, all HVAC, engines,
boilers, elevators, machinery, pipes, plumbing, wiring, gas, steam and
electrical fittings, sidewalks, asphalt, parking, water, sewer and gas
connections, heating equipment, and all other fixtures, machinery and equipment
now or hereafter belonging to or connected with the demised premises or used in
their operation, and all alterations, additions and improvements thereto, make
all repairs, replacements and renewals, in and about the same, inside and
outside, ordinary and extraordinary, structural or otherwise, necessary to
preserve the demised premises in good order and condition, including such as may
be necessary because of conditions existing at the time of the commencement of
the term of this Lease, which repairs, replacements and renewals shall be in
quality and class at least equal to that of the original work; promptly pay the
expenses of such repairs, replacements and renewals; suffer no waste or injury
and keep the sidewalk and curb in good repair and free from snow, ice, dirt and
rubbish; permit at reasonable intervals during the usual business hours the
Landlord and representatives of the Landlord to enter the demised premises for
the purpose of inspection and to exhibit them for the purpose of sale, rental or
mortgaging; suffer the Landlord to make (in the Landlord's discretion, although
the Landlord shall be under no obligation to do so) repairs or improvements to
any and all parts of any building on the demised premises and to comply with all
orders of governmental authority applicable to said buildings or to any occupant
thereof if the Tenant be in default, after written notice as hereinafter
mentioned, in respect to any of said matters; permit during the year next prior
to the expiration of the term the usual notices of "For Sale" and "To Let" to be
placed and to remain unmolested in a conspicuous place or places upon the
exterior of the demised premises, but not on the windows and doors, and repair
at or before the end of the term all injury done by the installation or removal
of trade fixtures, furniture, machinery and other property.
Without intending to limit the generality of the foregoing, it being
agreed that the obligations and undertakings of the Tenant, as provided in this
Section 1 of ARTICLE V, shall be and be deemed to be absolute, it is understood
that if the Tenant, after the use of due diligence and the expenditure of all
reasonable efforts, be delayed in performing any of the obligations set forth in
this Section 1 of ARTICLE V by reason of governmental preemption, prohibition,
limitation or restriction in connection with any national emergency declared by
the President of the United States, or in connection with any rule, order or
regulation published by any department or subdivision thereof of any
governmental agency, then (but only while such governmental preemption,
prohibition, limitation or restriction continues in force) the time for the
Tenant to perform its obligations under this Section 1 of ARTICLE V shall be
extended until a reasonable time after any such reason shall have ceased to
exist.
5
<PAGE>
Section 2. The Tenant shall not obstruct the street or sidewalk
adjacent to the demised premises, nor do or suffer anything to be done upon the
demised premises which will be liable to cause structural injury to any building
then upon the premises; nor permit the accumulation of waste or refuse matter.
ARTICLE VI
ALTERATIONS (WITH RELATED INSURANCE PROVISIONS)
Section 1. The Tenant shall not install or incorporate in any building
existing at any time upon the demised premises any materials, articles or
fixtures purchased under conditional sale or which may be subject to chattel
mortgage. The foregoing shall not apply to such chattels or articles of
personalty which are neither part of the realty nor attached to the freehold.
Section 2. In the event of the Tenant making any construction or
alteration or addition or improvement costing Two Thousand Five Hundred and
00/100ths ($2,500.00) Dollars, or more, the Tenant shall cause plans with
details and specifications covering the proposed construction, alteration,
addition or improvement to be prepared and submitted to the Landlord for its
approval, and the Landlord agrees to approve said plans and specifications
unless it is reasonable to withhold such approval; and the Tenant shall also
cause said plans with details and specifications to be approved by the
governmental authorities having jurisdiction thereof, all of such approvals to
be obtained before any work is commenced and such submission to, and approval
by, the Landlord and public authorities shall likewise be required as to any
amendments to such plans with details and specifications. The Tenant agrees that
it will do and perform all of this work, or cause the same to be done and
performed, in a good and workmanlike manner, and will prosecute the said work to
completion with due diligence. Upon the completion of any construction,
alterations, additions or improvements, the Tenant shall furnish to the Landlord
certificates of compliance with all requirements of all governmental authorities
having jurisdiction and of the Board of Fire Underwriters having jurisdiction,
if such certificates are commonly issued.
Section 3. In the event of the Tenant making any construction or
alteration or addition or improvement on the premises, the Tenant shall deliver
to the Landlord a Certificate of Insurance of casualty or liability insurance,
but in which, however, the Landlord may be named as an additional party insured
indemnifying and saving harmless the Landlord from all loss or damage by reason
of any injury or alleged injury to any person or persons or property caused by
or on account of or arising out of ownership, maintenance, or use of the demised
premises or arising out of the risks of such building operations and from any
and all liability in connection therewith, which said policy shall be in the
minimum sum of Five Million Dollars ($5,000,000.00) combined single limit and
property damage per occurrence. Such policy of insurance shall be in a company
duly authorized by the State of Connecticut to do business in the said State,
which the Landlord agrees to approve unless it is reasonable to withhold
approval.
6
<PAGE>
ARTICLE VII
INDEMNITY TO LANDLORD
Section 1. The Tenant shall indemnify, defend and save harmless the
Landlord against any and all claims arising from the conduct or management of or
from any work or thing whatsoever done in or about the demised premises or the
equipment therein during said term, or arising out of the occupation of the
demised premises or the streets, vaults, sidewalks and walls adjacent thereto,
or the use or maintenance of boilers and elevators therein, or arising from any
act or negligence of the Tenant or any of its agents, servants or employees, or
arising from any accident, injury or damage whatsoever, however caused, to any
person or persons, or to the property of any person, persons, corporation or
corporations, occurring during said term on, in or about the demised premises,
or the sidewalks, streets, driveways and vaults, if any, adjacent thereto, and
from and against all costs, attorneys' fees, expenses and liabilities incurred
in or about any such claim or any action or proceeding brought thereon, except
for the negligence of the Landlord, his agents, servants or employees, and
Landlord's Workmen's Compensation claims by Landlord's employees. In case any
action or proceeding be brought against the Landlord by reason of any such
claim, except as excluded above, the Tenant, on notice from the Landlord, shall
resist or defend such action or proceeding. It is further agreed and understood
that the Tenant shall at its own cost and expense, for the further protection of
the Landlord, cause to be delivered to the Landlord a Certificate of insurance
(in which, however, the Tenant may be named as an additional party insured,
provided such policy contains a provision or an endorsement to the effect that
the Landlord's rights and interests in or under such policy shall in nowise be
affected by any acts of omission or commission by the Tenant) issued by an
insurance company, if such policy is obtainable, satisfactory to the Landlord,
and which the Landlord agrees to approve unless it is reasonable to withhold
approval, indemnifying the Landlord against any and all of the claims and
liabilities in this Article provided for, except as excluded above, in the
minimum sum of Five Million Dollars ($5,000,000.00) combined single limit and
property damage per occurrence.
When such policy of liability insurance shall be about to expire and
likewise when each renewal thereof shall be about to expire, the Tenant shall,
at least ten (10) days before the expiration date, cause to be delivered to the
Landlord a new Certificate. In the event of the failure of the Tenant to provide
such liability insurance or any renewal thereof, or to pay the premium thereon
so as to keep the same valid, the Landlord may either provide the insurance
itself, or may itself pay the premium on the insurance effected by the Tenant
and, in either case, all sums paid or the obligation to pay which has been
incurred by the Landlord may be recovered by the Landlord from the Tenant as
"additional rent".
7
<PAGE>
ARTICLE VIII
BROKER
Section 1. Each party acknowledges that it has dealt with no broker or
realtor in connection with this transaction. In the event that said
representation is not correct and a claim is made for a commission, then the
party who has in fact dealt with a real estate broker or realtor in connection
with this transaction shall indemnify the other for any claim for a commission.
ARTICLE IX
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS
Section 1. The Tenant shall at its own cost and expense promptly
execute and comply with all laws, rules, orders, ordinances, regulations and
notices of violation at any time issued or in force applicable to the demised
premises or to the occupation thereof, made by or emanating from the village,
town, city, county, state and federal governments and each and every department,
bureau and official thereof having jurisdiction, it being the intention of the
parties hereto that the Tenant shall hereby assume the entire responsibility and
also fully relieve the Landlord from the responsibility and expense of executing
and complying with the laws, rules, orders, ordinances, regulations and notices
of violation.
ARTICLE X
ASSIGNMENT, ETC., OF LEASE
Section 1. The Tenant shall have no right to assign this Lease, or
sublet the premises, unless it shall first, in writing, request the Landlord for
permission to do so, which permission shall not be unreasonably withheld. If
such request is reasonable, the Landlord, at his option, shall either:
(a) give the Tenant such permission, and thereafter upon such
assignment or subletting, the Tenant shall continue to be as fully responsible
for all the obligations under this Lease, as though it continued to occupy the
Demised Premises;
(b) terminate this Lease, in which case it shall notify the
Tenant of such election, and this Lease shall, by virtue of such notice,
terminate on the last day of the month in which such notice is given; provided
that the Landlord shall only be entitled to exercise the option described in
this Section (b) in the case of an assignment or subletting of the entire
demised premises for the remaining term of this Lease and all renewals.
Section 2. In the event Landlord consents to an assignment or sublet by
the Tenant as set forth above:
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(a) Tenant covenants and agrees that immediately upon entering
into said assignment or sublease, Tenant will deliver to the Landlord a true and
correct copy same;
(b) In the event that the Tenant shall default in the
performance of any of the terms, provisions, covenants, agreements or conditions
of this Lease on the part of the Tenant to be performed, and should such default
continue for the respective periods in this Lease set forth, the Landlord shall
have the right, at its option, forthwith and without notice, to collect the
rentals and other charges from the subtenant or assignee, and apply them to
curing the default or defaults of the Tenant hereunder until such default or
defaults have been cured.
ARTICLE XI
LOSS OR DESTRUCTION BY FIRE OR OTHERWISE
Section 1. Partial Destruction. In the event the building in which the
demised premises are located shall, during the term of this Lease, be partially
(but not substantially) destroyed or damaged by fire or other casualty, Tenant
shall give immediate notice thereof, in writing, to Landlord, and the Landlord
shall promptly repair and restore the premises within a reasonable time at his
own costs and expense. If the demised premises, or any part thereof, as a result
of said partial destruction of the demised premises or the building in which the
demised premises are located, shall be rendered untenantable for the purposes of
the use by Tenant contemplated in this Lease by fire or other casualty, rent
shall be accordingly abated pro rata from the date of such fire. In the event
that the Landlord fails to proceed with reconstruction of the premises, so that
the same remains unusable by the Tenant for his business purposes, within one
hundred twenty (120) days after such partial destruction, this Lease may be
terminated at Tenant's election.
Section 2. Substantial destruction or total destruction. If the
premises shall, during the term of this Lease, be substantially or totally
destroyed or damaged by fire or other casualty, (which shall be defined as more
than sixty (60%) percent destroyed) whether or not covered by insurance, the
Landlord may elect to repair or rebuild, or not to do so, in which latter event
this Lease shall terminate.
(a) In the event the Landlord elects to rebuild, he shall
notify the Tenant of the same within thirty (30) days after such destruction or
damage, and he shall complete said rebuilding within six (6) months thereafter;
and, during the period until the rebuilding is completed, the rent shall be
adjusted so as to relieve the Tenant from any payment of rent for any portion of
the demised premises of which the Tenant shall have lost the use of as a result
of such damage, during the period of such loss of use.
(b) In the event the Landlord elects not to repair or rebuild,
or fails to notify the Tenant of his election to do so within thirty (30) days
of such damage, this Lease may
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be terminated by either the Landlord or the Tenant, upon giving thirty (30) days
written notice thereof to the other, and in the event of such termination, no
rent shall be payable hereunder beyond the date of such extensive damage.
ARTICLE XII
CONDEMNATION
Section 1. If during the term of this Lease there is a total
condemnation (as hereinafter defined) of the demised premises, the Tenant shall
not be entitled to any apportionment of the award for the taking of the fee, but
shall be entitled to damages for moving costs, and personal property loss.
In the event of said total condemnation of the demised premises, or in
the event of a negotiated sale to the condemning authority in lieu of
condemnation, then the term of this lease shall cease and terminate as of the
date of said taking or sale.
In the event of a partial condemnation (as hereinafter defined) of the
demised premises, the Tenant shall not be entitled to any apportionment of the
award for the taking of the fee, but shall be entitled to damages for moving
costs and personal property loss.
After such partial taking, the yearly minimum rental shall be reduced
by a percentage equal to the percentage of the total building area so taken and
not replaced but all of the terms and covenants of this lease shall remain in
full force and effect.
As used herein, a partial condemnation shall mean a taking of the
demised premises by governmental authority or public or private corporation
authorized to take interests in land by condemnation, which taking diminishes
the square footage of the building of the demised premises by less than thirty
percent (30%).
As used herein, a total condemnation shall mean a taking as described
above, which taking diminishes the square footage of the building of the demised
premises by thirty percent (30%) or more.
ARTICLE XIII
TERMINATION OF LEASE FOR NONPAYMENT
Section 1. If the Tenant shall make default in the payment of any
monthly installment of the annual rent reserved hereunder on any day fixed for
the payment of any such installment or shall make default in the payment of any
item of additional rent herein provided for or in making any other payment
herein provided for, the Landlord may forthwith give to the Tenant ten (10)
days' written notice of intention to end the term of this Lease, specifying the
sums
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unpaid, and thereupon at the expiration of five (5) days from the date of
receipt by Tenant of said written notice, if said monies shall not meanwhile
have been paid, the term under this Lease the leasehold estate hereby granted
shall expire as fully and completely as if that day were the date herein
definitely fixed for the expiration of the term, and the Tenant shall then and
thereupon quit and surrender the demised premises to the Landlord. Nothing
herein contained, however, shall be construed to prevent the Landlord,
immediately upon a default, from forthwith instituting summary proceedings in
any court having jurisdiction to recover possession of the demised premises upon
the ground of nonpayment of rent, but in any such summary proceedings instituted
for nonpayment of rent, Tenant, at any time prior to the issuance of a warrant
of dispossess, shall be entitled to have such proceedings discontinued upon
payment to the Landlord (or the petitioner in such proceedings) of all rent in
arrears, with interest thereon, together with the costs and disbursements of
such proceedings, provided that at the time of such payment this lease shall not
have terminated or expired in accordance with any of the provisions of said
lease.
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ARTICLE XIV
TERMINATION OF LEASE UPON CERTAIN DEFAULTS
Section 1. If the Tenant should be adjudicated a bankrupt, or make a
general assignment for the benefit of creditors, or file a voluntary petition in
bankruptcy, or for an arrangement or for reorganization, or take the benefit of
any insolvency act or statute, or if a receiver or trustee be appointed for its
property in or under any insolvency, or in connection with the liquidation
(voluntary or involuntary) of the Tenant, and such trustee or receiver be not
dismissed within sixty (60) days after the appointment of such trustee or
receiver, or if an involuntary petition in bankruptcy or for an arrangement or
for reorganization be filed against the Tenant (unless the petition be
thereafter dismissed) , or if a warrant of attachment be issued or a judgment
recovered against the Tenant or such owner of the leasehold estate and the same
shall not be discharged by payment or by filing of bond or undertaking within
sixty (60) days after such attachment or judgment shall have been rendered, or
if a receiver be appointed for the property of the Tenant or such owner of the
leasehold estate and such receivership be not vacated within sixty (60) days, or
if this lease of the leasehold estate created hereunder be transferred or pass
to or revolve upon any other person or corporation, except as herein permitted,
and the rent is not paid, or if the Tenant shall make a default in fulfilling
any of the terms, conditions or covenants of this Lease (other than the
covenants for payment of rent, additional rent or other monies as set forth in
the preceding Article), or if the demised premises be abandoned or deserted, the
Landlord may give to the Tenant fifteen (15) days' written notice of intention
to end the term of this Lease, specifying the cause therefor, and thereupon at
the expiration of ten (10) days from the date of the receipt by the Tenant of
said written notice, if said default shall continue or if said cause or
condition which was the basis of said notice shall continue to exist, the term
under this Lease and the leasehold estate hereby granted shall expire as fully
and completely as if that day were the date herein definitely fixed for the
expiration of the term, and the Tenant shall then and thereupon quit and
surrender the demised premises to the Landlord.
ARTICLE XV
RE-ENTRY
Section 1. If the Tenant shall make default in the payment of the rent
reserved hereunder or any item of additional rent herein mentioned, or any part
of either, or in making any other payment herein provided for, as a result of
which default the leasehold estate hereby granted shall expire as provided in
ARTICLE XIII of this lease, or if this lease shall expire as provided in either
of the two preceding Articles hereof, the Landlord may immediately or at any
time thereafter re-enter the demised premises and remove all or any persons and
all or any property therefrom, either by summary proceedings or by any suitable
action or proceeding at law or in equity or by force or otherwise, without being
liable to indictment, prosecution or damages therefor, and repossess and enjoy
said premises together with all additions, alterations and improvements. The
words "re-enter" and "re-entry" as used in this lease are not restricted to
their technical legal meaning.
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ARTICLE XVI
RELETTING AND DAMAGES
Section 1. In the event of the breach of any term, covenant, agreement,
condition or undertaking on the part of the Tenant to be respected, complied
with or performed hereunder, or in the event that the demised premises or any
part hereof becomes vacant or are or is abandoned, or in the event that the
Tenant is evicted by summary proceedings or otherwise, whether the Landlord
re-enters in or for such event or not, or in the event that the relation of
Landlord and Tenant shall cease or terminate by reason of the re-entry of the
Landlord under the terms and conditions contained in this lease or by the
eviction or ejectment of the Tenant by summary proceedings or otherwise, or in
the event that the Landlord terminates this lease by reason of any nonpayment of
rent or other breach of the covenants of said Lease by the Tenant at any time
(whether pursuant to the law or to the provisions of this lease), the Landlord
shall, in addition to any and all other rights and remedies which it may have,
have the rights and remedies following, and the Tenant shall, in addition to all
other obligations and liability, be subject to the obligations, liability and
duties following:
(a) The Tenant shall, nevertheless, remain and be liable to
the Landlord for and on account of all arrearages of rent, including both the
fixed rent and the additional rent, and for the breach of all other agreements
and conditions imposed by force of this lease, and shall also be liable to pay,
and shall pay, to the Landlord, as damages for the breach of this lease on the
days originally fixed in this lease for payment thereof during the remainder of
the term of this lease, sums of money equivalent to what would be the fixed rent
and additional rent and other monies payable by the Tenant if this lease were
still continuing in force, less, however, the net avails (ascertained as
provided in succeeding subparagraph (b) of this ARTICLE XVI), if any, or any
reletting of the premises by the Landlord; and the Landlord shall be entitled to
any and all appropriate actions at law or in equity for the enforcement of
Tenant's liability and obligations hereunder, and shall be entitled to recover
the said damages either in one action or in successive actions from time to
time, each brought to recover one or more installments of damage theretofore
accrued, as the Landlord may desire.
(b) The Landlord shall be entitled, at its option, to repair
the demised premises, as would be reasonable and the product of an arm's length
agreement, the Tenant remaining liable and responsible for the cost and payment
of same; and the Landlord may, at its option, with or without causing any such
repairs, relet the said demised premises or portions thereof, from time to time,
as opportunity may offer and as Landlord may deem expedient, to any person or
persons, firm or corporation and for any purpose deemed by it suitable, for such
rental as it deems fit, and for any period equal or greater than or less than
the remainder of the demised term, and to receive and apply the rents so
received to the cost of re-entry, repairs, redecorating, payment of broker's
commission in connection with the obtaining of such new
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tenant, management, costs and counsel fees incurred by the Landlord in
connection with any of the foregoing; and then to apply the balance ("net
avails"), in the Landlord's discretion, on account of the obligations of the
Tenant for rent theretofore accrued and thereafter to accrue hereunder or for
damages occasioned by breach of any covenants and conditions herein provided to
be performed or observed on the part of the Tenant; provided, however, that in
no case shall the Tenant be entitled to any surplus remaining as the result of
any such reletting, and provided further that the Landlord shall not be required
to relet the same, and that the Tenant's obligations hereunder (including its
obligation to pay the rent herein reserved) shall not be affected or diminished
by reason of any failure on the part of the Landlord to relet said premises.
ARTICLE XVII
WAIVER OF RIGHT OF REDEMPTION
Section 1. The Tenant hereby expressly waives any and all right of
redemption which it may have under statute now in effect or hereafter enacted,
or any rule of law now in effect or hereafter promulgated or otherwise, in case
it shall be dispossessed or removed from the premises by judgment or warranty of
any court or judge, or in the event that the term of this lease shall be
shortened, abbreviated or limited by nonpayment of rent, additional rent or any
other monies, or by notice given by the Landlord as herein authorized.
ARTICLE XVIII
RECOVERY OF "ADDITIONAL RENT"
Section 1. If the Tenant shall make default in performance of any
covenant herein contained, whether calling for the payment of monies or the
doing of an act, the Landlord may immediately or at any time thereafter, after
fifteen (15) days written notice, pay such monies or do such act for account~of
the Tenant. Any amount paid or expense incurred by the Landlord by reason of the
failure of the Tenant to comply with any provision of this lease, shall be
deemed to be "additional rent" for the demised premises and shall be due and
payable by the Tenant to the Landlord on the first day of the next calendar
month, or at the option of the Landlord on the first day of any succeeding
month, or at the further option of the Landlord the same may be recovered by the
Landlord after the expiration of the term.
ARTICLE XIX
MECHANIC'S LIENS
Section 1. The Tenant shall have no power to do any act, or to make any
contract, that may create, or be the foundation for, any lien upon the present,
or other, estate, or reversion, of the Landlord in the demised premises, or upon
any of the buildings, or improvements thereon.
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Section 2. If a notice of mechanic's lien be filed against the demised
premises or the Landlord's interest therein, for, or purporting to be for, labor
or material alleged to have been furnished or to be furnished at the demised
premises to or for the Tenant or to or for someone claiming under the Tenant,
and if the Tenant shall fail to cause such lien to be discharged within
twenty-five (25) days after written notice, the Landlord may discharge or cause
the discharge of such lien by deposit or by bonding proceedings and the Landlord
may require the lienor to prosecute an appropriate claim to enforce such lienor'
s claim, and if such lienor be successful the Landlord may, after written notice
to the Tenant, pay the amount of any judgment recovered on such claim. Any
amount paid or expense incurred by the Landlord as in this clause provided
(including surety company premiums on bond to discharge the lien) and any
expense incurred or sum of money paid by the Landlord in connection with the
defense of such action shall be paid by the Tenant to the Landlord and shall be
recoverable by the Landlord as "additional rent".
ARTICLE XX
REMEDIAL RIGHTS
Section 1. All remedies, rights and elections of the Landlord, which
are given by this lease, are in addition to and not in substitution for, nor
exclusive of, the rights of action and causes of actionor other remedies that
may be available to it at law or in equity or under any present or future
statutes. In the event of a breach or threatened breach by the Tenant of any of
the covenants hereof, the Landlord shall have the right of injunction and the
right to invoke any remedy allowed at law or inequity, as if specific remedies,
indemnity or reimbursement were not herein provided for.
ARTICLE XXI
NON-WAIVER PROVISIONS
Section 1. The failure of the Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease, or
to exercise any option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by the Landlord of
rent or additional rent or any other sum of money, with knowledge of the breach
of any condition or covenant hereof, shall not be deemed a waiver of such
breach, and no waiver by the Landlord of any provision hereof shall be deemed to
have been made unless in writing and subscribed by the Landlord.
Section 2. If this Lease be assigned, or if the demised premises or any
part hereof be underlet or occupied by anybody other than the Tenant, and if the
Tenant be in default in respect to any payment to be made by the Tenant
hereunder, the Landlord may collect rent or
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other monies from the assignee, undertenant or occupant, and apply the net
amount collected to any amounts due hereunder, and no such collection shall be
deemed to be a waiver of the covenant herein against assignment nor to be an
acceptance of the assignee, under tenant or occupant as tenant, nor to be a
release of the Tenant from the performance by the Tenant of the covenants herein
contained on the part of the Tenant.
ARTICLE XXII
TITLE TO IMPROVEMENTS
Section 1. All improvements, additions and alterations made by the
Tenant to or upon the demised premises, (except trade fixtures), shall when
made, at once be deemed to be attached to the freehold and become the property
of the Landlord and at the end or other expiration of the term shall be
surrendered to the Landlord.
Section 2. If after default in payment of rent or violation of any
other provision of this lease, or upon the expiration of this lease for any
cause, the Tenant moves out or is dispossessed and fails to remove any trade
fixtures or other property, other than merchandise, prior to such said removal,
expiration of lease, or prior to the issuance of the final order or execution of
the warrant, then and in that event, the said fixtures and property shall be
deemed abandoned by the said Tenant and shall become the property of the
Landlord.
ARTICLE XXIII
NON-LIABILITY OF LANDLORD
Section 1. The Landlord does not warrant that any governmental license
or licenses or permit or permits which may be required for any business to be
carried on by the Tenant in the demised premises will be granted, or if granted
will be continued in effect or renewed, and any failure to obtain such license
or any revocation thereof or failure to renew the same shall not release the
Tenant from the terms of this lease.
Section 2. The Tenant has inspected the demised premises and the
surroundings and accepts the demised premises in their present condition without
any warranty or representation of any nature whatsoever on the part of the
Landlord; except that the Landlord warrants that the building has been erected
in accordance with the State and local building code and that the underground
mechanicals are in working condition.
Section 3. The Landlord shall not be liable for any action of the
elements, or any failure of water supply, gas, or electric current, or for
injury or damage to person or property caused by or resulting from steam, gas,
electricity, water, rain or snow, which may leak or flow from any part of the
demised premises, or from any pipes, appliances, or plumbing works of the same,
or from the street or sub-surface, or from any other place, or for
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interference with light or other incorporeal hereditaments or easements, however
caused, except as provided in Section 2 and except for the negligence of
Landlord, its agents, servants, or employees; neither shall the Landlord be
liable for any defect in the building on the demised premises, whether latent or
otherwise.
ARTICLE XXIV
SUBORDINATION
Section 1. This lease shall be subject and subordinate at all times to
any and all mortgage or mortgages hereafter placed on or against the demised
premises and to all renewals, modifications, consolidations, replacements and
extensions thereof, which said mortgage or mortgages may be in any principal
amount or amounts.
This lease shall also be subject and subordinate at all times to any
and all other mortgages hereafter placed on or against the demised premises, and
to all renewals, modifications, consolidations, replacements and extensions
thereof.
In confirmation of such subordination, the Tenant shall execute and
deliver promptly any certificate or instruments subordinating this lease and the
leasehold estate hereby granted to any such mortgage or mortgages, and to the
lien thereof, that the Landlord may request, and the Tenant hereby appoints the
Landlord the attorney-in-fact of the Tenant to execute and deliver any such
instrument or instruments for the Tenant, which said authority is hereby
declared to be coupled with an interest on the part of the Landlord and to be
irrevocable; provided, always, however, that this paragraph is and shall be
self-executing, and that this lease is and shall be subject and subordinate to
all such mortgage or mortgages, without the execution by the Tenant of any
instrument or instruments whatsoever.
Notwithstanding said subordination, this lease shall continue in full
force and effect, and the Tenant's rights hereunder shall not be disturbed
except as in this lease provided.
Section 2. If there shall be a default in the payment of either the
principal, or interest, of any mortgage, or mortgages, hereafter placed against
the demised premises and senior in lien and effect to this lease, the Tenant
shall have the right and privilege to pay such mortgage principal or interest so
in default, and, upon making such payment, the Tenant shall, in addition to any
other rights it may have at law or in equity, be entitled to deduct the amount
so paid from the installment, or installments, of rent then due, or thereafter
falling due, until the amount of such payment shall have been repaid therefrom
to the Tenant.
ARTICLE XXV
SURRENDER AT END OF TERM
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Section 1. Upon the expiration of the term hereby demised, the Tenant
shall quit and surrender to the Landlord the demised premises with all
alterations, additions and improvements in good order and condition, reasonable
wear and damage by fire or casualty no matter how occurring and damage by the
elements excepted; except that the Tenant shall have the right to remove his
trade fixtures as described in Article XXII, Section 1.
ARTICLE XXVI
COVENANTS AND CONDITIONS
Section 1. Each and every covenant on the part of the Tenant shall be
deemed and construed to be and the same hereby is made a condition of the
Tenant's leasehold estate, and each and every condition herein contained shall
be deemed and construed to be and the same hereby is made a covenant which the
Tenant promises and agrees to perform.
ARTICLE XXVII
QUIET ENJOYMENT
Section 1. The Landlord covenants and agrees with the Tenant
that if and so long as the Tenant duly pays the rent reserved herein and duly
performs all of the terms, provisions, covenants, agreements and conditions
hereof on the part of the Tenant to be performed, the Tenant shall peaceably
enjoy the demised premises, subject, however, to the terms, provisions,
covenants, agreements and conditions of this lease and to all mortgages and
encumbrances on or against the demised premises prior in lien to this lease; but
the Tenant covenants and agrees that the Landlord shall not be liable for any
breach of this covenant that may occur after the Landlord shall have ceased to
be the owner of the demised premises. Said covenants of quiet enjoyment shall
then become the responsibility of the successor in interest to the Landlord
herein.
ARTICLE XXVIII
NOTICES
Section 1. Any notice by the Landlord to the Tenant or by the Tenant to
the Landlord shall be given and shall be deemed to have been duly given if
either delivered personally or mailed by certified mail in any general or branch
post office, enclosed in a certified postpaid envelope addressed to the
respective addresses below stated, or (after an address for notices has been
duly changed as below provided) if so enclosed and mailed and addressed to the
changed address below provided for:
To the Landlord at: Attn.: Dean Yimoyines
French's Mill Associates
87 Grandview Avenue
Waterbury, CT 06708
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To the Tenant at: Attn.: Dean Yimoyines
Opticare Eye Health Center,
P.C. - Waterbury
87 Grandview Avenue
Waterbury, CT 06708
Either party may at any time change the address for notices to such
party, by delivering or mailing as aforesaid a notice, at least five (5) days
previously, stating the change and setting forth the changed address.
Section 2. As soon as the actual commencement date of this lease has
been determined by the parties hereto, they shall execute a Notice of Lease
document which shall be recorded on the Waterbury Land Records, which Notice
shall indicate the initial term and options of this Lease.
ARTICLE XXIX
INTERPRETATION OF TERM "LANDLORD"
Section 1. The Tenant covenants and agrees that the term "Landlord", as
used in this lease, means only the owner for the time being of the demised
premises so that, in the event of any sale or other transfer of the demised
premises, the owner of said demised premises prior to such sale or other
transfer, shall be and hereby is entirely freed, relieved, released and
discharged of all covenants, agreements, liability and obligations of the
Landlord thereunder, and it shall be deemed and construed without further
agreement between the parties or between the parties and the purchaser or other
transferee of the demised premises that such purchaser or other transferee has
assumed and agreed to carry out any and all covenants agreements and obligations
of the Landlord hereunder.
ARTICLE XXX
COMPLETENESS OF INSTRUMENT
Section 1. This lease embodies the entire agreement of the parties and
there are no other or collateral agreements or engagements in existence between
them or binding on either of them. The parties hereto agree that this lease
shall not be modified in any manner, except by a written instrument signed by
both parties hereto. The titles or headings of the several articles are inserted
for convenience of references, and this lease and the several parts thereof are
to be construed without reference to said titles or headings.
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ARTICLE XXXI
BINDING SUCCESSORS IN INTEREST
Section 1. The terms and provisions of this lease shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto, provided, however, that no assignment by or through the Tenant in
violation of the provisions hereinbefore contained shall vest any right in any
party claiming under any such assignment, and provided, further, that no
assignment or subletting made by the Tenant with the consent of the Landlord
shall relieve the Tenant from any liability to fulfill any obligation hereunder,
it being the intention of the parties hereto that the Tenant shall assume and be
liable to the Landlord for any and all acts or omissions of any and all
assignees, subtenants or undertenants.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
Signed, sealed and delivered
in the presence of: LANDLORD:
FRENCH'S MILL ASSOCIATES
/s/
- ----------------------------------
By /s/ Richard Getnick
----------------------------------
Richard Getnick,
/s/ A GENERAL PARTNER
- ----------------------------------
TENANT:
OPTICARE EYE HEALTH CENTER,
/s/ P.C. - WATERBURY
- ----------------------------------
By /s/ Dean Yimoyines
---------------------------------
/s/ Dean Yimoyines,
- ---------------------------------- Its President
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SCHEDULE A
All that certain piece or parcel of land, with all the improvements
thereon, situated on the westerly side of Grandview Avenue in The City of
Waterbury, County of New Haven and State of Connecticut, being shown as Parcel
"A" (REVISED) on a map entitled "Map of Land of Norman S. Drubner, Trustee,
Waterbury, Conn. Showing Parcels A & B, (Revised) The A.J. Patton Co., Surveyor,
Waterbury, Conn., October 28, 1983, Scale l"=40'", which Map was recorded on the
Waterbury Land Records on October 30, 1983, Document No.
664397, bounded and described as follows:
Beginning at a point in the westerly line of Grandview Avenue at the
southeasterly corner of land now or formerly of Margaret K. Della Bella, said
point being the northeasterly corner of the within described land, thence
running in the westerly line of Grandview Avenue S20(degree)-08'-50"E 323.76
feet to Parcel B (Revised) as shown on said Map, thence running in line of said
Parcel B (Revised) S69(degree)-19'-31"W 73.84 feet, S20(degree)-40'-29"E 10.00
feet, S69(degree)-l9'-3l"W 305.00 feet, N20(degree)-40'-29"W 53.44 feet,
N14(degree)-32'-20"W 89.45 feet and N20(degree)-40'- 29"W 63.50 feet to land now
or formerly of Gerard H. Theroux, thence running in line of land now or formerly
of Gerard H. Theroux N300-3l"-34"E 51.13 feet, N46(degree)-42'-59"E 93.19 feet
and N7(degree)-44'-19"E 67.68 feet to land now or formerly of City of Waterbury,
thence running in line of land now or formerly of City of Waterbury
N68(degree)-3l'-40"E 102.21 feet to land now or formerly of Margaret K. Della
Bella, thence running in line of land now or formerly of Margaret K. Della Bella
S 20(degree)-08'-50"E 2.50 feet and N68(degree)-31'-40"E 112.02 feet to
Grandview Avenue and the point of beginning.
BOUNDED:
NORTHERLY. By land now or formerly of City of Waterbury and
land now or formerly of Margaret K. Della Bella.
EASTERLY: By land now or formerly of Margaret K. Della Bella,
By Grandview Avenue and By Parcel B (Revised)
SOUTHERLY: By Parcel B (Revised).
WESTERLY: By Parcel B (Revised)
NORTHWESTERLY: By land now or formerly of Gerard H. Theroux.
<PAGE>
LEASE dated 9/30 ,1997, by and between FRENCH'S MILL ASSOCIATES II,
LLP, a Connecticut general partnership having a principal place of business in
the City of Waterbury, County of New Haven and State of Connecticut (hereinafter
referred to as "Landlord") and OPTICARE EYE HEALTH CENTERS, INC., having a
principal place of business in the said City of Waterbury, County of New Haven
and State of Connecticut (hereinafter referred to as "Tenant")
W I T N E S S E T H:
ARTICLE I
DEMISE, PREMISES, TERM, OPTION, RENTS
1.1. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, space in tie Building (hereinafter defined) owned by Landlord and
located at 160 Robbins Street Waterbury, Connecticut. The building is
hereinafter referred to as "Building"; and the land and upon which the Building
is located is hereinafter referred to as Land" said Building and Land being more
particularly bounded and described on Exhibit A, and shown on Exhibit B both
being attached hereto and hereby made a part hereof. The Building, Land and any
other improvements thereon are hereinafter collectively referred to as the
"project".
1.2. The space hereby leased to Tenant is situated on the upper level
of the building and consists of 4,922 square feet and is shown on Exhibit C
attached hereto and hereby made a part hereof. Said space, together with all
fixtures and equipment which at the commencement or during the term of this
Lease are thereto attached (except items not deemed to be included therein and
removable by Tenant as provided in Article XIII), constitute and are hereinafter
called the "Demised Premises". In addition, Tenant shall have, as appurtenant to
the Demised premises, the non-exclusive right to use, and permit its invitees to
use in common with others, public or common lobbies, hallways, stairways, and
passenger elevators in the Building, subject however, to all reasonable rules
and regulations from time to time established by Landlord.
1.3. This Lease shall be for a term of fifteen (15) years, commencing
October 1, 1997.
1.4. During the first five (5) of the leasehold term, the Tenant agrees
to pay to the Landlord a fixed minimum annual rental of the sum of Seventy Six
Thousand Seven Hundred Eighty Three dollars & 20/l00ths Dollars ($76,783.20),
payable in equal monthly installments of Six Thousand Three Hundred Ninety Eight
dollars & 60/100ths Dollars ($6,398.60) each, on the first day of each month, in
advance. Thereafter, the fixed minimum annual rental shall be adjusted every
five years (5) in accordance with Rider I attached hereto and made a part
hereof.
<PAGE>
2
1.5. Tenant shall have the option to extend this Lease for one (2)
additional term of ten (10) years each on the same terms and conditions, as
herein provided, except rental rate shall be according to Rider I; said option
shall be exercised by written notice from Tenant to Landlord at least six (6)
months prior to the expiration of the then existing leasehold term. If Tenant
holds over without having or exercising said option to extend, it shall be
considered a month-to-month Tenant and shall pay the adjusted rental as set
forth in Rider I herein, plus twenty-five percent (25%) of the adjusted rental.,
as a privilege for holding over.
1.6. Tenant agrees to pay to Landlord the fixed rent and additional
rent herein reserved promptly as and when the same shall become due and payable
without demand therefor and without any abatement, deduction or set off, except
as specifically provided for herein.
1.7. If the date Tenant is obligated to commence payment of rent falls
on a day other than the first day of a calendar month, the fixed rent for such
calendar month shall be prorated (on a thirty day basis) so that all future
rental payments shall be made on the first day of a calendar month and the
leasehold term shall be extended accordingly.
1.8 Tenant agrees that it, its permitted assignees or sub-lessees shall
use the Demised premises for the sole and exclusive purpose of conducting
therein all office uses, and all activities reasonably associated therewith.
ARTICLE II
USE AND CONDITION
2.1. If any governmental license or permit, other than a Certificate of
Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised premises, or any part thereof, and if failure to secure
such license or permit would in any way affect Landlord, Tenant, at its
expenses, shall duly procure and thereafter maintain such license or permit and
submit the same to inspection by Landlord. Tenant shall at all times comply with
the terms and conditions of each such license or permit.
2.2. Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Demised Premises, in violation of the certificate
of Occupancy for the Demised Premises, or for the Building or in violation of
any rules and/or regulations prescribed in Exhibit D, annexed hereto.
ARTICLE III
CONSTRUCTION OF THE DEMISED PREMISES
3.1. The Demised Premises shall be delivered by Landlord to Tenant
as-is.
<PAGE>
3
ARTICLE IV
UTILITIES
41. The Tenant shall be responsible for 25.36% of all charges for
electric, light and power, heating of hot water and the cost for the operation
of heating and air conditioning to the Demised Premises which is its share of
commonly metered space occupied by Opticare Eye Health Centers, Inc., Urology
Specialists, P.C., and Rehab Health, P.C.
ARTICLE V
ADJUSTMENTS OF RENT
5.1. "Taxes" shall mean the real estate taxes imposed upon the Project
by any governmental bodies or authorities having power to tax the Project. If at
any time during the term of this Lease the methods of taxation prevailing at the
commencement of the term hereof shall be altered so that in lieu of, or as an
addition to or as a substitute for the whole or any part of the taxes,
assessments, levies, impositions, or charges, now levied, there shall be levied,
assessed and imposed, (i) a tax assessment, levy, imposition, or charge wholly
or partially as a capital levy or otherwise on the rents received therefrom or
(ii) a license fee measured by the rent payable by Tenant to Landlord, or (iii)
any other such additional or substitute tax, assessment, levy, imposition or
charges as the part thereof so measured or based shall he deemed to be included
within the term "Tax" for the purpose thereof Tenant shall have no obligation to
pay income, estate or franchise taxes of the Landlord.
5.2. "Base Tax" imposed upon the Project shall mean the amount of the
taxes payable on the Grand List of October 1, 1986, in the amount of
$122,791.46.
5.3. "Excess Tax" or "Excess Taxes" shall mean any amount of Taxes
payable by Landlord upon the Project in any Tax Year in excess of the Base Tax.
5.4. "Tax Year" shall mean a twelve (12) month period beginning on
October 1st of one year and ending on September 30th of the following year.
5.5 "Tenant's Proportionate Share" of the Excess Tax shall be 10.1%
percent.
5.6. "Permanent Improvements" shall mean any leasehold improvement made
by Tenant, unless such improvement shall be assessed against the Tenant by the
taxing authority as personal property.
5.7. Tenant agrees throughout the term of this Lease to pay to
Landlord, Tenant's Proportionate Share of any Excess Taxes. (That amount payable
by Tenant is hereinafter called
<PAGE>
4
the "Tax Payment"). In the event this Lease shall commence or terminate during
any Tax Year, then Tenant's Tax Payment for that Tax Year shall be prorated on a
twelve (12) month basis. Tenant agrees to pay the amount of such Tax Payment to
the Landlord within thirty (30) days after submission of a bill therefor, which
shall be paid in two installments: July 1 and February 1 of each year.
5.8. If Landlord shall receive a refund for any Tax Year of any Excess
Tax in which a Tax Payment shall have been made by Tenant. Landlord shall repay
to Tenant, is proportionate Share of such refund after deducting therefore
Tenant's Proportionate Share of the costs and expenses (including but not
limited to attorney's fees and appraiser's fees) of obtaining such refund.
5.9. "Operating Expense Charges" shall include the following:
(i) cleaning of all common areas which are not in the
exclusive possession and control of any one tenant, i.e., bathrooms, stairways,
elevator, hallways, lobby, garage, storage areas, all parking areas;
(ii) cost of all common area utilities including common area
lighting, common area electrical, water and elevator maintenance;
(iii) maintenance and repair of all interior and exterior
structural and mechanical components of building including heating system,
electrical system, plumbing system, sprinkler system and air-conditioning
system;
(iv) trash removal, landscape maintenance and parking lot
maintenance;
(v) cost of fire, liability and extended coverage insurance
for the Project;
(vi) management fees and any miscellaneous charges and
expenses which legitimately relate to the maintenance, repair and operation of
the building and parking areas.
5.10. "Base Operating Expense Charges" shall mean the amount of said
charges as defined herein incurred by the Landlord during the twelve (12) month
period beginning January 1, 1987, and ending on December 31, 1987, in the amount
of Twenty-Seven Thousand Three Hundred Thirty-Four and 45/l00ths Dollars
($27,334.45).
5.11. "Excess Operating Expense Charges" shall mean any increase in the
amount of said charges incurred by the Landlord over the Base Operating Expense
Charges, as herein above defined.
<PAGE>
5
5.12. Tenant's proportionate share of the "Excess Operating Expense
Charges" shall be 6.3%. Tenant agrees throughout the term of this Lease to pay
to Landlord Tenant's proportionate share of any Excess Operating Expense charges
as defined herein in accordance with tenant's proportionate share as defined
herein, which is 10.1%.
5.14. Tenant agrees to pay the amount of Excess Operating Expense
charges to the Landlord within thirty (30) days after the submission of a bill
therefor.
5.15. Said bill for Excess Operating Expense charges shall be sent
annually to the Tenant and shall be accompanied by a detailed statement from the
Landlord outlining the Operating Expense Charges.
5.16. The Excess Operating Expense Charges allocated to the Tenant each
year shall also serve as an estimate of said charges for the next calendar year.
Each calendar year said charge shall be divided by twelve (12) and shall be
payable in twelve (12) equal monthly installments commencing January 1 of each
year. At the end of each calendar year, when the above described Excess
Operating Expense Charges accounting is made, the Tenant shall receive credit
for said estimated portion already paid during the year and the Tenant shall be
liable only for the remainder of its actual allocated charge. If the portion
already paid exceeds the allocated charge, then the Tenant shall receive a
reimbursement for any amount over-paid. The intent hereof is that the Tenant
will be paying on a monthly basis an estimate of the Tenant's share of the
current year's Excess Operating Expense charges based upon the previous year's
actual operating charges.
5.17. Tenant shall have the right, at any reasonable time, to examine
the books of the Landlord to verify these charges.
ARTICLE VI
SUBORDINATION. NOTICE TO MORTGAGEES
6.1. This Lease shall be subject to and subordinate at all times to any
and all mortgage or mortgages hereafter placed on or against the Demised
Premises and to all renewals, modifications, consolidations, replacements and
extensions thereof, which said mortgage or mortgages may be in any principal
amount or amounts, provided that the mortgagee or mortgagees is or are a lending
institution or institutions and/or an insurance company or companies duly
authorized to do business in the State of Connecticut.
6.2 In confirmation of such subordination, the Tenant shall execute and
deliver promptly any certificate or instruments subordinating this Lease and the
leasehold estate hereby granted to any such mortgage or mortgages, and to the
lien thereof, that the Landlord may
<PAGE>
6
request; provided, always however, that this Article VI is and shall be
self-executing, and that this Lease Is and shall be subject and subordinate to
all such mortgage or mortgages, without the execution by the Tenant of any
instrument or instruments whatsoever
Notwithstanding said subordination, this Lease shall continue
in full force and effect, and the Tenant's rights hereunder shall not be
disturbed except as in this Lease provided and such nondisturbance status shall
be acknowledged by the mortgagee to whom the subordination runs.
ARTICLE VII
QUIET ENJOYMENT
7.1. So long as Tenant pays all of the fixed rent and additional rent
due hereunder and performs all of Tenant's other obligations hereunder, Tenant
shall peaceably and quietly have, hold and enjoy the Demised Premises. This
covenant shall be binding upon the Landlord only so long as Landlord is in
possession and collecting rent from Tenant and all liability of Landlord
hereunder shall cease upon a transfer of Landlord's interest in the Building but
shall thereafter be binding upon the transferee of Landlord's interest.
ARTICLE VIII
ASSIGNMENT
8.1. The Tenant shall have no right to assign this Lease, or sublet the
premises, unless it shall first, in writing, request the Landlord for permission
to do so, which permission shall not be unreasonably withheld or delayed. If
such request is reasonable, the Landlord, at his option, shall either.
(i) give the Tenant such permission, and thereafter upon such
assignment or subletting, the Tenant shall continue to be as fully responsible
for all the obligations under this Lease, as though it continued to occupy the
Demised Premises;
(ii) terminate this Lease, in which case it shall notify the
Tenant of such election, and this Lease shall, by virtue of such notice,
terminate on the last day of the month in which such notice is given.
8.2. In the event Landlord consents to an assignment or sublet by the
Tenant as set forth above:
(i) Tenant covenants and agrees that immediately upon entering
into said assignment or sublease, Tenant will deliver to the Landlord a true and
correct copy of same;
<PAGE>
7
(ii) In the event that the Tenant shall default in the performance
of any of the terms, provisions, covenants, agreements or conditions of this
Lease on the part of the Tenant to be performed, and should default continue for
the respective periods in this Lease set forth, the Landlord shall have the
right, at its option, forthwith and without notice, to collect the rentals and
other charges from the subtenant or assignee, and apply them to curing the
default or defaults of the Tenant hereunder until such default or defaults have
been cured.
ARTICLE XX
COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES
9.1. Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and at
its expense shall comply with all laws and requirements of public authorities
which shall, with respect to the Demised Premises or the use and occupancy
thereof, or the abatement of any nuisance, impose any violation, order or duty
on Landlord or Tenant arising from (i) Tenant's use of the Demised Premises,
(ii) the manner of conduct of Tenant's business or operation of its
installations, equipment or other property therein, (iii) any cause or condition
created by the Tenant, or (iv) breach of any of Tenant's obligations hereunder.
However, Tenant shall not be required to make any structural or other
substantial change in the Demised Premises unless the requirement arises from a
cause or condition referred to in clauses (i), (ii), (iii), or (iv) above.
Furthermore, Tenant need not comply with any such law or requirement of public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Article 9.2.
Landlord, at its expense, shall comply with all other such laws; and
requirements of public authorities as shall affect the Demised Premises, but may
similarly contest the same. Said contest shall not affect Tenant's ability to
operate its business.
9.2. Tenant may, at its expense, (and if necessary, in the name of but
without expense to Landlord) contest by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings, provided that:
(i) Landlord shall not be subject to criminal penalty or to
prosecution for a crime nor shall the Demised Premises or any part thereof be
subject to being condemned or vacated, by reason of non-compliance or otherwise
by reason of such contest;
(ii) Such noncompliance or contest shall not constitute or result
in any violation of any superior mortgage, or if such superior mortgage shall
permit such noncompliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be furnished at the
expense of Tenant; and
<PAGE>
8
(iii) Tenant shall keep Landlord advised as to the status of such
proceedings.
ARTICLE X
FIRE INSURANCE COMPLIANCE - WAIVER OF SUBROGATION
10.1. Tenant shall not violate, or permit the violation of, any
condition imposed by the fire insurance policies carried by Landlord with
respect to the Project and shall not do, or permit anything to be done, or keep
or permit anything to be kept in the Demised Premises which would subject
Landlord to any liability or responsibility for personal injury or death or
property damage, or which would increase the fire or other casualty insurance
rate on the Building or the property therein over the rate which would otherwise
then be in effect (unless Tenant pays the resulting premium as provided in
Section 10.3) or which would result in insurance companies of good standing
refusing to insure the Building or any of such property in amounts reasonably
satisfactory to Landlord.
10.2. Tenant agrees to carry fire insurance polices with extended
coverage, with respect to Tenant's fixtures, and any leasehold improvements made
by Tenant, in an amount equal to their replacement value. Landlord shall be
named as an additional insured upon each such policy. Said policies shall
contain a provision whereby the insurer agrees not to cancel such insurance
without ten (10) days prior notice to Landlord. On or before the commencement
date of this Lease, Tenant shall furnish Landlord with a certificate evidencing
the aforesaid insurance coverage and renewals shall be furnished to Landlord
within ten (10) days of the expiration date of such policy for which a policy
was to have been furnished. In case a tire loss occurs, then and in such event
if there is no loss to Landlord, the Landlord agrees to endorse any and all
drafts in connection with such loss.
10.3. Landlord and Tenant shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage or rent
insurance policy obtained by it and covering the Building, the Demised Premises
or the personal property, fixtures and equipment located therein or thereon,
pursuant to which the respective insurance companies waiver subrogation or
permit the insured, prior to any loss, to agree with a third party to waive any
claim it might have against said third party. The waiver of subrogation or
permission for waiver of any claim hereinbefore referred to shall extend to the
agents of each party and its employees and, in the case of Tenant, shall also
extend to all other persons and entities occupying or using the Demised Premises
in accordance with the terms of this Lease.
In the event that Tenant shall be unable at any time to obtain any
of the provisions referred to above in any of its insurance policies, Tenant
shall cause Landlord to be named in such policy or policies as one of the
assured.
<PAGE>
9
Each party hereby releases the other with respect to any claim
(including a claim for negligence) which it might otherwise have against the
other party for loss, damage or destruction with respect to its property by fire
or other casualty (including rental value or business interest, as the case may
be) occurring during the term of this Lease.
This Paragraph shall not apply if it violates or invalidates the
terms of any insurance coverage carried by either party.
10.4. Tenant hereby agrees that in the event that the premium charged
to Landlord for any and all insurance policies carried by Landlord and covering
the Project, of which the Demised Premises are a part, shall increase as a
result of any activity in the use of the Demised Premises by Tenant, whether or
not consented to by Landlord, Tenant shall pay the cost of any such increase and
such increase shall be paid within fifteen (15) days next following Landlord's
billing of same.
10.5. It is understood and agreed by Tenant that Tenant will comply at
Tenant's sole cost and expense with all rules, regulations, ordinances or
requirements of the Connecticut Board of Fire Underwriters or any other similar
body having jurisdiction over the Building of which the Demised Premises are a
part, with respect to the Demised Premises. Tenant shall not be responsible for
any structural repairs or alterations unless such are required as a result of
Tenant's use.
10.6 Landlord shall maintain during the term of this Lease fire
insurance policies with extended coverage in an amount equal to at least eighty
percent (80%) of the replacement cost of the Building. Landlord shall also
maintain liability insurance with respect to the Building and the Land in an
amount of at least One Million Dollars ($1,000,000.00) on a flat limit basis.
ARTICLE XI
RULES AND REGULATIONS
11.1 Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations annexed hereto as Exhibit D, and such
reasonable and lawful changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate in
writing to Tenant, which do not unreasonably affect the conduct of Tenant's
business in the Demised Premises and which do not derogate the Tenant's use of
the space.
11.2. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to Tenant to enforce the Rules and Regulations
or the terms covenant, or
<PAGE>
10
conditions in any other Lease, as against any other tenant, and Landlord shall
not be liable to Tenant for violation of the Same by any other Tenant or its
employees, agents or visitors.
ARTICLE XII
TENANT'S ALTERATIONS
12.1. Tenant may from time to time during the term of this Lease, at
its expense, make such alterations, installations, substitutions, improvements
and decorations (hereinafter collectively called "changes" and, as applied to
changes provided for in this Article, "Tenant's Alterations") in and to the
Demised Premises, excluding structural changes, as Tenant may reasonably
consider necessary for the conduct of its business in the Demised Premises on
the following conditions:
(i) The outside appearance or the strength of the Building or the
Demised Premises or of any of their structural parts shall not be affected.
(ii) No part of the Building outside of the Demised Premises shall
be physically affected.
(iii) The proper functioning of any of the air-conditioning,
heating, or other mechanical, electrical, sanitary and other service systems of
the Demised Premises and Building shall not be adversely affected by Tenant.
(iv) In performing the work involved in making such alterations,
Tenant shall be bound by and observe all of the conditions and covenants
contained in the following Sections of this Article.
(v) Before proceeding with any Tenant Alterations, including but
not being limited to any change to the plumbing, air-conditioning, electrical,
or ventilating Systems, Tenant shall submit to Landlord plans and specifications
for the work to be done, for Landlord's written approval, which shall not be
unreasonably withheld or delayed.
12.2. Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant's
Alterations to be performed in compliance therewith and with all applicable laws
and requirements of public authorities, and with all applicable requirements of
insurance bodies, and in good and workmanlike manner, using new materials and
equipment at least equal in quality and grade to the original installations of
the Building. Tenant's Alterations shall be performed in such manner as not to
interfere unreasonably with or delay and (unless Tenant shall indemnify Landlord
therefor) as not to impose any additional expense upon Landlord in the
construction, maintenance or operation of
<PAGE>
11
the Building. Throughout the performance of Tenant's Alterations, Tenant, at its
expense, shall carry, or cause to be carried, worker's compensation insurance
and general liability insurance for any occurrence in or about the Building, of
which Landlord and its agents shall be named as parties insured, in such limits
as Landlord may reasonably prescribe, with insurers reasonably satisfactory to
Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence
that such insurance is in effect at or before the commencement of Tenant's
Alterations and, on request, at reasonable intervals thereafter during the
continuance of Tenant's Alterations. If any of Tenant's Alterations shall
involve the removal of any fixtures, equipment or other property in the Demised
Premises which are not Tenant's Property (as defined in Article XIII), such
fixtures, equipment or other property shall be promptly replaced at Tenant's
expense, with new fixtures, equipment or other property (as the case may be) of
like utility and at least equal value unless Landlord shall otherwise expressly
consent in writing.
12.3. Tenant, at its expense and with diligence and dispatch shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenant's Alterations which shall be issued by the
then public authority having or asserting jurisdiction. Tenant shall defend,
indemnify and save harmless Landlord against any and all mechanics' and other
liens filed in connection with Tenant's Alterations, including the liens of any
conditional sales, or chattel mortgages upon or financing statements or security
agreement: affecting any materials, fixtures, or articles so installed in and
constituting part of the Demised Premises and against all costs, expenses and
liabilities incurred in connection with any such lien, conditional sale or
chattel mortgage or financing statement or security agreement or any action or
proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of all such liens within fifteen (15) days after
Landlord makes written demand therefor.
ARTICLE XIII
TENANT'S PROPERTY
1 3.1. All fixtures, equipment, improvements and appurtenances attached
to or built into the Demised Premises at the commencement of or during the term
of this Lease, including but not limited to non-portable heating, plumbing,
electrical, ventilating and air-conditioning equipment, whether or not by or at
the expense of Tenant, shall be and remain a part of the Demised Premises, shall
be deemed the property of Landlord and shall not be removed by Tenant, except as
hereinafter in this Article expressly provided.
13.2. All moveable partitions, other business and trade fixtures, and
other machinery and equipment (excluding heating, air-conditioning and
ventilating), communications equipment, sound, stereo or other electrical
equipment and office equipment, which are installed in the Demised Premises by
or for the account of Tenant, without expense to Landlord, and can be removed
without structural damage to the Building and all furniture, furnishings and
other
<PAGE>
12
articles of moveable personal property owned by Tenant and located in the
Demised Premises (all of which are sometimes called "Tenant's Property") shall
be and shall remain the property of the Tenant and may be removed by it at any
tine during the term of this Lease; provided, that if any of Tenant's Property
is removed, Tenant shall repair or pay the cost of repairing any damage to the
Demised Premises or to the Building resulting from such removal.
13.3. At or before the Expiration Date, or the date of any earlier
termination of this Lease, or as promptly as practicable after such an earlier
termination date, Tenant's Property, except such items thereof as Tenant shall
have expressly agreed in writing with Landlord were to remain to become the
property of Landlord shall be removed by Tenant and Tenant shall repair any
damage to the Demised Premises or the Building resulting from such removal.
13.4. Any other items of Tenant's Property (except money, securities,
and other like valuables, including computers or related equipment), which shall
remain in the Demised Premises after the Expiration Date or after a period of
fifteen (15) days following an earlier termination date, may, at the option of
the Landlord, be deemed to have been abandoned, and in such case either may be
retained by Landlord as its property or may be disposed of, without
accountability, in such manner as Landlord may see fit at Tenant's expense.
13.5. Tenant shall be responsible for and shall pay before delinquency
all municipal, county or state taxes assessed during the term of this Lease
against any personal property of any kind, owned by or placed in, upon or about
the Demised Premises by the Tenant.
13.6 Landlord shall not be liable for any damages to property of Tenant
or of others located on the Demised Premises, nor for the loss of or damage to
any property of Tenant or of others by theft or otherwise, except it caused by a
negligent act of Landlord or his agents. Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain, or snow or leaks from any part of
the Demised Premises or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or by dampness or by any
other cause of whatsoever nature, except if caused by a negligent act of
Landlord or his agents. Landlord shall not be liable for any such damage caused
by other tenants or persons in the Demised Premises, occupants or adjacent
property to the Project or the public, or caused by operation in construction of
any private, public or quasi-public work. All property of Tenant kept or stored
in the Demised Premises shall be so kept or stored at the risk of Tenant only.
ARTICLE XIV
REPAIRS AND MAINTENANCE
14.1. Tenant shall take good care of the Demised Premises.
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13
14.2. Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the load per square foot which such floor was designed to
carry and which is allowed by law.
14.3. Business machines and electronic, sound and mechanical equipment
belonging to Tenant which cause noise or vibration that may be transmitted to
the structure of the Building or to the Demised Premises to such a degree as to
be reasonably objectionable to Landlord shall be placed and maintained by the
party owning the machines or equipment at such party's expense, in settings of
cork, rubber or spring type vibration eliminators sufficient to eliminate noise
or vibration. In the event of any violation, Tenant shall be obligated to make
such repairs to the Demised Premises and Building, resulting therefrom and to
take all steps reasonably necessary to eliminate such noise or vibration.
14.4. Tenant shall not move any safe, heavy equipment or bulky matter
in or out of the Building without the Landlord's prior written consent, which
consent Landlord agrees not to unreasonably withhold or delay. All such moving
shall be made during hours which will least interfere with the normal operations
of the Building and all damage caused by such movement shall be promptly
repaired by Tenant at Tenant's expense.
14.5. Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease, or required by Law, to make in or to any portion of the Building
or the Demised premises, or in or to the fixtures, equipment or appurtenances of
the Building of the Demised Premises. Landlord agrees to use due diligence with
respect thereto and shall perform work, except in case of emergency, at times
reasonably convenient to Tenant and otherwise in such manner as will not
materially interfere with Tenant's use of the Demised Premises.
14.6. Tenant shall receive deliveries of goods and merchandise only in
such manner, at such times and in such areas as will not unreasonably interfere
with the operation of the Building or the tenants thereof.
ARTICLE XV
INTERRUPTION OF SERVICES
15.1. Landlord reserves the right; without any liability to Tenant
therefor, to stop service of any of the heating, ventilating, air-conditioning,
electric, sanitary, elevator, or any of the other services required of Landlord
under this Lease, whenever and for so long as may be necessary, by reason of
accident, emergencies, strikes or the making of repairs or changes which
Landlord is required by this Lease or by law to make or in good faith deems
necessary, by
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14
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control.
ARTICLE XVI
ACCESS, CHANGES IN BUILDING FACILITY, NAME
16.1 Except for inside surfaces of the Demised Premises any access to
the lobby and to elevators of the Building, including exterior Building walls,
core corridor walls and doors and any core corridor entrance, any terraces or
roofs adjacent to the Demised Premises, and any space in or adjacent to the
Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other Building facilities, and the use
thereof, as well as access thereto through the Demised Premises for the purpose
of operation, maintenance, decoration and repair, are reserved to Landlord.
16.2. Tenant shall permit Landlord to install, use and maintain pipes,
ducts and conduits within the demised walls, bearing columns and ceilings of the
Demised Premises.
16.3. Landlord or Landlord's agent shall have the right, upon request,
to enter and/or pass through the Demised Premises or any part thereof, after
notice and at reasonable times during reasonable hours, (i) to examine the
Demised Premises and to show them to the fee owners, holders of mortgagee's, or
prospective purchasers, mortgagees, or lessees of the Building as an entirety,
and (ii) for the purpose of making such repairs or changes or doing such
repainting in or to the Building or its facilities as may be provided for by
this Lease or as Landlord may be required to make by law or in order to repair
and maintain the Building or its fixtures or facilities. Landlord shall be
allowed to take all materials into and upon the Demised Premises that may be
required for such repairs, changes, repainting or maintenance, without liability
to Tenant. Landlord shall also have the right to enter on and/or pass through
the Demised Premises, or any part thereof, at such times as such entry shall be
required by circumstances or emergency affecting the Demised Premises or the
Building.
16.4. During the period of six (6) months prior to the expiration date
of this Lease, Landlord may exhibit the Demised Premises to prospective tenants.
16.5. Landlord reserves the right, at any time after completion of the
building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well as
in or to the street entrances, halls, passages, elevators, and stairways
thereof, as it may deem necessary or desirable except that such changes will not
interfere with Tenant's access to the Demised Premises, or use thereof.
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15
ARTICLE XVII
NOTICE OF ACCIDENTS
17.1. Tenant shall give notice to Landlord, promptly after Tenant
learns thereof, of (i) any accident in or about the Demised Premises for which
Landlord might be liable, (ii) all fires in the Demised Premises, (iii) all
damages to or defects in the Demised Premises, including the fixtures, equipment
and appurtenances thereof, for the repair of which Landlord might be
responsible, and (iv) all damage to or defects in any parts or appurtenances of
the Building's sanitary, electrical, heating, ventilating, air-conditioning,
elevator and other systems indicated in or passing through the Demised Premises
or any part thereof.
ARTICLE XVIII
INSURANCE, NON-LIABILITY AND lNDEMNIFICATION
18.1. Landlord shall not be liable to Tenant for any injury or damage
to Tenant or to any other person or for any damage to or loss (by theft or
otherwise) of, any property of Tenant or of any other person, irrespective of
the cause of such injury, damage, or loss, unless caused by or due to the
negligent act or omission of Landlord, provided, however, that with respect to
injury, damage or loss resulting from causes set forth in Article 10.3, the
waiver by Tenant provided in Article 10.3 shall govern. No property, other than
such as might normally be brought upon or kept in the Demised Premises as an
incident to the reasonable use of the Demised Premises for the purposes herein
permitted will be brought upon or be kept in the Demised Premises.
18.2. Tenant shall indemnify and save harmless Landlord and its agents
against and from (a) any and all claims (i) arising from the conduct or
management of the Demised Premises by Tenant, or of any business therein by
Tenant, or any work or thing whatsoever done or any condition created by Tenant
in or about the Demised Premises, or (ii) arising from any negligent or
otherwise wrongful act or omission of Tenant or any of its subtenants or
licensees or its or their employees, agents or contractors, and (b) all costs,
expenses and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon. In case any action or proceeding be
brought against Landlord, by reason of any such claim, Tenant, upon notice from
Landlord, shall resist and defend such action or proceeding.
18.3. In addition to the foregoing indemnification, Tenant agrees that
Tenant will, at its own costs and expense, maintain insurance protection and
indemnity Landlord and Tenant against any and all claims for injury and damage
to persons or property or for the loss of life or property occurring on, in or
about the Demised Premises, and arising out of the act, negligence, omission,
non-feasance, or malfeasance, of Tenant, its employees, agents, contractors,
customers, licensees and invitees. Such insurance shall be carried in a minimum
amount of not
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16
less than $1,000,000.00 in respect to bodily injury or death to any one person
or in respect to any one occurrence or accident and not less than $500,000 for
property damage. All such insurance shall be issued by insurers of recognized
responsibility authorized to do business in the State of Connecticut and shall
name Landlord" as an additional insured and contain a provision whereby the
insurer agrees not to cancel such insurance without ten (10) days prior notice
to Landlord. On or before the commencement date of this Lease, Tenant shall
furnish Landlord with a certificate evidencing the aforesaid insurance coverage
and renewals shall be furnished to Landlord within ten (10) days of the
expiration date of such policy for which a policy was to have been furnished.
18.4. This Lease and the obligations' of either party hereunder (except
for payment of money) shall be in no wise affected, impaired or excused because
Landlord is unable to fulfill, or is delayed in fulfilling, any of it's
obligations under this Lease by reason of strike, other labor trouble,
governmental pre-emption or priorities or other controls or shortages of fuel,
supplies or labor resulting therefrom, or other like causes beyond Landlord's
reasonable control.
ARTICLE XIX
DESTRUCTION OR DAMAGE
19.1. If the Building or the Demised Premises shall be damaged or
destroyed by tire or other casualty, and this Lease shall not have been
terminated as provided in Paragraph 19.3., Landlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises, at his expense,
with reasonable dispatch after notice to it of the damage or destruction;
provided, however, that Landlord shall not be required to repair or replace any
of Tenant's Property or any alteration or leasehold improvements made by Tenant.
19.2. If the Demised Premises shall be partially damaged or partially
destroyed by tire or other casualty, the rents payable hereunder shall be abated
to the extent that the Demised Premises shall have been rendered untenantable
and for the period from the date of such damage or destruction to the date the
damage shall be repaired or restored.
19.3. If the Building or the Demised Premises shall be substantially
damaged or destroyed by fire or other casualty, then in either such case,
Landlord may terminate this Lease by giving Tenant notice to such effect within
ninety (90) days after the date of the casualty, which notice shall be given as
in this Lease provided, and thereupon the term of this Lease shall expire by
lapse of time upon the thirtieth (30th) day after notice is given and Tenant
shall vacate the Demised Premises and surrender the same to Landlord. The
Demised Premises and/or Building (whether or not the Demised Premises are
damaged), shall be deemed substantially damaged or destroyed if Landlord is
required by expend thirty (30%) percent or more of the full
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17
replacement value of (a) the Building or (b) thirty (30%) percent or more of the
full replacement value of the Demised Premises immediately prior to such damage
and destruction.
ARTICLE XX
EMINENT DOMAIN
20.1. If the whole of the Building or any part of the Demised Premises
shall be lawfully taken by condemnation or in any other manner for any public or
quasi-public use or purpose, this Lease and the term and estate hereby granted
shall forthwith terminate as of the date of vesting of title in such condemning
authority (which date is hereinafter also referred to as the date of taking),
and the rents shall be prorated and adjusted as of such date.
20.2. If any part of the Building, not including any part of the
Demised Premises, shall be taken by condemnation or in any other manner for any
public or quasi-public use or purpose, then at the Landlord's sole option to be
exercised within thirty (30) days after the effective date of such taking, this
Lease shall terminate as of the date of taking and the rents shall be prorated
and adjusted as of such date.
20.3 In the event of any taking, partial or whole, provided for in this
Article, all of the proceeds of any award, judgment or settlement payable by the
condemning authority Shall be and remain the sole and exclusive property of the
Landlord, and Tenant shall not be entitled to any portion of such award,
judgment or settlement received by Landlord from such condemning authority.
Tenant, however, may pursue its own claim against the condemning authority for
any damage or award permitted under the laws of the State of Connecticut to be
paid to the Tenant without diminishing or reducing the award, judgment or
settlement receivable by Landlord.
ARTICLE XXI
SURRENDER
21.1. On the last day of the term of this lease, or upon any earlier
termination of this Lease, or upon any re-entry by landlord upon the Demised
Premises, Tenant shall quit and surrender the Demised Premises to Landlord in
good order, condition, and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of Tenant's Property therefrom except as
otherwise expressly provided in this Lease.
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18
ARTICLE XXII
TENANT'S DEFAULT
22.1 If Tenant shall make an assignment for the benefit of creditors,
or shall file a voluntary petition under any bankruptcy or insolvency law, or
any involuntary petition alleging an act of bankruptcy or insolvency shall be
filed against Tenant under any bankruptcy or insolvency law, or if a petition
shall be filed by or against Tenant under the organization provisions of the
United States Bankruptcy Act or under the provisions of any law of like import,
or if a petition shall be filed by Tenant under the arrangement provisions of
the United States Bankruptcy Act or under the provisions of any law of like
import, or Whenever a permanent receiver of Tenant or of or for the property of
Tenant shall be appointed, then, Landlord, (a) at any time after receipt of
notice of the occurrence of any such event, or (b) if such event occurs without
the acquiescence of Tenant, at any time after the event continues for sixty (60)
days, may give Tenant a notice of intention to end the term of this Lease at the
expiration of five (5) days from the date of service of such notice of
intention, and upon the expiration of said five (5) day period this Lease and
the term and estate hereby granted, whether or not the term shall theretofore
have commenced, shall terminate with the same effects as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Section 22.3.
22.2. If Tenant shall default in the payment of any installment of
fixed rent, or in the payment of any additional rent or any other charge payable
by Tenant to Landlord, on any day upon which the same ought to be paid, and such
default shall continue for ten (10) days after notice or if Tenant shall do or
permit anything to be done, whether by action or inaction, contrary to any of
Tenant's obligations hereunder, and if such situation shall continue and shall
not be remedied by Tenant within thirty (30) days after Landlord shall have
given to Tenant a notice specifying the same, or, in the case of a happening or
default which cannot with due diligence be cured within a period of thirty (30)
days if Tenant shall not (i) within said thirty (30) day period advise Landlord
of Tenant's intention to institute all steps necessary to remedy such situation,
(ii) duly institute within said thirty (30) day period, and thereafter
diligently prosecute to completion all steps necessary to remedy the same and
(iii) complete such remedy within such time after the date of the giving of said
notice of Landlord as shall reasonably be necessary, or if any event shall occur
or any contingency shall arise whereby this Lease or the estate hereby granted
or the unexpired balance of the term hereof would by operation of law or
otherwise, devolve upon or pass to any person, firm or corporation other than
Tenant, except as expressly permitted by Article VIII, or if Tenant shall
abandon the Demised Premises (unless as a result of a casualty), therein any of
said cases set forth above, Landlord may (in addition to any and all rights at
law or in equity) re-enter and remove all persons and property from the Demised
Premises and such property may be removed and stored in a public warehouse or
elsewhere at
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19
the cost of, and for the account of Tenant, all without being deemed guilty of
trespass, or becoming liable for any loss or damage which may be occasioned
thereby.
22.3. Should Landlord elect to re-enter, as herein provided, or should
it take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, it may either terminate this Lease, or make such
alterations and repairs as may be necessary in order to relet the premises, and
relet said premises or any part hereof for such term or terms (which may be for
a term extending beyond the term of this Lease) and at such rental or rentals
and upon such other terms and condition; as Landlord in its discretion may deem
advisable; and, upon each such reletting, all rentals received by the Landlord
from such reletting shall be applied first, to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs and expenses of such reletting, including brokerage fees and
attorney's fees and of costs of such alterations and repairs; third, to the
payment of rent due and unpaid hereunder, and the residue, of any, shall be held
by Landlord and applied in payment of future rent as the same may become due and
payable hereunder. If such rentals received from such reletting during any month
be less than that to be paid during that month by Tenant hereunder, Tenant shall
pay any deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such re-entry or taking Possession of said premises by Landlord
shall be construed as an election on its part to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction. Notwithstanding any
such reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies it may
have, it may recover from Tenant all damages it may incur, by reason of such
breach, including the cost of recovering the Demised Premises, reasonable
attorney's fees, and including the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of the stated term over the then reasonable rental
value of the Demised Premises for the remainder of the stated term, all of which
amounts shall be immediately due and payable from Tenant to Landlord. In
determining the rent which would be payable by Tenant hereunder, subsequent to
default, the annual rent for each year of the unexpired term shall be equal to
the average annual fixed rental and additional rents paid by Tenant from the
commencement of the term to the time of default.
22.4. The parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Demised Premises, and/or claim of injury or damage.
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20
22.5 Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of the Demised Premises by reason of the violation by Tenant of any
of the covenants or conditions of this Lease.
ARTICLE XXIII
WAIVERS
23.1. Without limiting the generality of any of the foregoing
provisions of this Lease, Tenant hereby waives any and all claims of any kind,
nature, or description against Landlord arising out of a failure of Landlord
from time to time to furnish any of the services required to be furnished by
Landlord under this Lease, including specifically, but without limitation,
air-conditioning, heat, electricity, elevator service and toilet facilities, so
long as the causes of any such failure are beyond the control of the Landlord
and not due to his negligence.
23.2. If Tenant is in arrears in payment of fixed rent or additional
rent hereunder, Tenant waives Tenant's right, if any, to designate the items
against which any payments made by Tenant are to be credited, and Tenant agrees
that Landlord may apply any payments made by Tenant to any items it sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited.
23.3. Tenant hereby acknowledges that this Lease constitutes a
commercial transaction, as such term is used and defined in Section 52-278a of
the Connecticut General Statutes, as amended.
ARTICLE XXIV
NO OTHER WAIVERS OR MODIFICATION'S
24.1. The waiver by either party of any breach by Tenant of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No covenant, term or condition of this Lease shall be deemed to have been
waived by Landlord unless such waiver be in writing by Landlord.
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21
24.2. No executory agreement hereafter made between Landlord and Tenant
shall be effective to change, modify waive, release, discharge, terminate or
effect an abandonment of this Lease, in whole or in part, unless such executory
agreement is in writing, refers expressly to this Lease and is signed by the
party against whom enforcement of the change, modification, waiver, release,
discharge or termination or effectuation of the abandonment is sought.
24.3. The following specific provisions of this section shall not be
deemed to limit the generality of any of any of the foregoing provisions of this
Article.
(a) No agreement to accept a surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by Landlord. The
delivery of keys to an employee of Landlord or of its agents shall not operate a
termination of this Lease or a surrender of the Demised Premises. If Tenant
shall at any time request Landlord to sublet the Demised Premises for Tenant's
account Landlord or its agent is authorized to receive said keys for such
purposes without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Landlord of any liability for loss or damage to any
of Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach of
any obligation of this Lease shall not be deemed a waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser amount
than the correct fixed rent or additional rent due hereunder shall be deemed to
be other than a payment on account, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance or pursue any other remedy
in this Lease or at law provided.
ARTICLE XXV
CURING TENANT'S DEFAULTS, ADDITIONAL, RENT
25.1. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency and in any other case
only if such default continues after the expiration of (i) ten (10) days from
the date Landlord gives Tenant notice of intention so to do, or (ii) the
applicable grace period provided in Section 22.2 or elsewhere in this Lease for
cure of such default, whichever occurs later.
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22
25.2. Bills for any expenses incurred by Landlord in connection with
any such performance by it for the account of Tenant, and bills for all costs,
expenses, arid disbursements of every kind and nature whatsoever, including
reasonable counsel fees, involved in collection or endeavoring to collect the
fixed rent or additional rent or any part hereof or enforcing or endeavoring to
enforce any rights against Tenant, under or in connection with this Lease, or
pursuant to law, including any such cost, expense and disbursement involved in
instituting and prosecuting summary proceedings, as well as bills for any
property, material, labor or services provided, furnished, or rendered, by
Landlord to Tenant monthly, or immediately, at Landlord's option, and, shall be
due and payable in accordance with the terms of such bills, as additional rent.
ARTICLE XXVI
BROKER
26.1. Tenant covenants, warrants and represents that there was no
broker involved in this Lease.
ARTICLE XXVII
NOTICES
27.1. Any notice, statement, demand or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this Lease or pursuant to any applicable law or requirement of public
authority, shall be in writing, (whether or not so stated elsewhere in this
Lease) and shall be deemed to have been properly given, rendered or made, if
sent by certified mail, return receipt requested, addressed to the other party
at the address hereinafter set forth, and shall be deemed to have been given,
rendered or made on the day so mailed, unless mailed outside of the State of
Connecticut, in which case it shall be deemed to have been given, rendered or
made on the expiration of the normal period of time for delivery of mail from
The post office of origin to the post office of destination. Either party may,
by notice as aforesaid, designate a different address or addresses for notice,
statements, demand or other communications intended for it.
27.2. Address of Tenant to which notices shall be sent:
Attn: Dean Yimoyines
President
OPTICARE EYE HEALTH CENTERS, INC.
87 Grandview Ave
Waterbury, CT 06708
27.3. Address of Landlord to which notices shall be sent:
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23
Attn: W. Scott Peterson
Managing Director
FRENCH'S MILL ASSOCIATES II, LLP
160 Robbins Street
Waterbury, CT 06708
ARTICLE XXVIII
ESTOPPEL CERTIFICATE MEMORANDUM OF LEASE
28.1. Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than ten (10) day's prior notice, to
execute and deliver to the other, a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the fixed rent and additional rent
have been paid, and stating whether or not, to the best knowledge of the signer,
the other party is in default in performance of any its obligations under this
Lease, and, if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by others with whom the party requesting such certificate may
be dealing.
28.2. At the request of either party, Landlord and Tenant shall
promptly execute, acknowledge and deliver a memorandum with respect to this
Lease sufficient for recording in accordance with the statutes of the State of
Connecticut, which shall contain the commencement date of this Lease. Such
memorandum shall not in any circumstances be deemed to change or otherwise
affect any of the obligations or provisions of this Lease. In no event shall
this Lease be recorded and if Tenant records this Lease in violation of the
terms hereof, Landlord shall have the option to terminate this Lease upon notice
to Tenant.
ARTICLE XXIX
REPRESENTATIONS
29.1. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon any warranties, representations, promises or statements, except
to the extent that the same are expressly set forth in this Lease or in any
other written agreement which may be made between the parties concurrently with
the execution and delivery of this Lease and shall expressly refer to this
Lease. This Lease and said other written agreements made concurrently herewith
are hereinafter referred to as the Lease Documents. It is understood and agreed
that all understandings and agreements heretofore had between the parties are
merged in the Lease Documents, which alone
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fully and completely express their agreement and that the same are entered into
after full investigation, neither party relying upon any statement or
representation not embodied in the Lease Documents, made by the other.
29.2. If any of the provisions of this Lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and Enforceable to the fullest extent
permitted by law.
29.3. This Lease shall be governed in all respects by the laws of the
State of Connecticut.
ARTICLE XXX
LIMITATIONS OF OBLIGATIONS
30.1. The obligation of this Lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to except that the provisions
of this Article shall not be construed as modifying the conditions of limitation
contained in Article XXII. However, the obligations of Landlord under this Lease
shall not be binding upon Landlord herein named with respect to any period
subsequent to the transfer of its interest in the Building, and/or Land as owner
or lessee thereof and in the event of such transfer said obligations shall
thereafter be binding upon each transferee of the interest of Landlord herein
named as such owner or lessee of the Building, but only with respect to the
period ending with a subsequent transfer within the meaning of this Article.
30.2. If Landlord shall be an individual, joint venture, tenancy in
common, co partnership, unincorporated association or other unincorporated
aggregate of individuals and/or entitled or a corporation, Tenant shall look
only to such Landlord's estate and property in the Building, and/or Land (or the
proceeds thereof) for the satisfaction of Tenant's remedies for the collection
of a judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default by Landlord hereunder, and no other
property or assets of such Landlord shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease, the relationship of Landlord and Tenant hereunder to
Tenant's use or occupancy of the Demised Premises.
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ARTICLE XXXI
CONSTRUCTION OF LEASE
31.1. The various terms which are defined in other Articles of this
Lease or are defined in Exhibits annexed hereto, shall have the meanings
specified in such other Article and such Exhibits for all purposes of this Lease
and all agreements supplemental thereto, unless the context shall otherwise
require.
31.2. The Article headings in this Lease and the Index prefixed to this
Lease are inserted only as a matter of convenience in reference and are not to
be given any effect whatsoever in construing this Lease.
31.3. The rule of eiusdem generis shall not be applicable to limit a
general statement following or referable to an enumeration of specific matters
to matters similar to the matters specifically mentioned.
ARTICLE XXXII
WASTE
32.1. Tenant shall not commit or suffer to be committed any waste upon
the Demised Premises or any nuisance or other act or thing which may disturb the
quiet enjoyment of any other tenant in the Building in which the Demised
Premises may be located.
32.2. Tenant shall, at Tenant's sole cost and expense, comply with all
of the requirements of all county, municipal, state, federal and other
applicable governmental authorities, now in force, or which may hereafter be in
force, pertaining to the said premises, and shall faithfully observe in the use
of the premises all municipal and county ordinances and state and federal
statutes now in force or which may hereafter be in force.
ARTICLE XXXIII
JANITORIAL SERVICES AND TRASH REMOVAL
33.1. Tenant shall be solely responsible for keeping the Demised
Premises clean by the use of its own janitorial service, and it is understood
and agreed that no part of said janitorial cost shall be borne by the Landlord.
Any and all personnel employed by Tenant to perform janitorial services shall be
bonded, and at Landlord's request, Tenant will furnish Landlord with
satisfactory evidence of its compliance with this provision.
<PAGE>
26
ARTICLE XXXIV
PARKING
34.1. The Tenant shall have the right to use in common with others the
parking areas adjacent to the Demised Premises as shown on Exhibit B.
The Landlord shall have the right to designate employee parking areas in which
the employees of this Tenant shall be required to park, as shown on Exhibit B.
The Tenant, its employees and agents, shall be prohibited from parking on the
area shown as "Patient/Customer Parking" on Exhibit B.
ARTICLE XXXV
SIGNAGE
35.1. The Tenant shall have the right to add its name to the signage on
Robbins Street and shall contract Dave Watterworth Signs to do so. The Tenant
shall also have the right to place a sign on the outside of the Building next to
the entrance and in the lobby of the Building. Such signage will conform to the
architectural decor of the Building and will comply to all local sign
ordinances, and is subject to the Landlord's written approval. Tenant will be
fully responsible for all costs and liability pertaining to its erection,
maintenance and removal of such signs.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first above written.
Signed, sealed and delivered in the presence of:
LANDLORD:
FRENCH'S MILL ASSOCIATES II, LLP
By: /s/ W. Scott Peterson
---------------------
W. SCOTT PETERSON
Managing Partner
TENANT:
OPTICARE EYE HEALTH CENTERS, INC.
By: /s/ Dean Yimoyines
----------------------
DEAN YIMOYINES
President
<PAGE>
1
Rider I
ADJUSTMENT OF FIXED MINIMUM RENT
The fixed minimum annual rental shall be adjusted after the first five
(5) years of the leasehold term and every five (5) years thereafter, including
any option term exercised by Tenant, based upon the fair market value appraisal
of the rent on each adjustment date in accordance with the procedure hereinafter
set forth. In no case shall the increase in rent for each adjustment period be
less than a fifteen (15%) percent increase over the then existing rent, nor
shall the increase be more than thirty (30%) percent of the then existing rent.
Said adjustment shall be determined as follows:
Prior to the expiration of ninety (90) days from the commencement of
each adjustment period, the Tenant shall deliver to the Landlord a short form
appraisal report prepared by a recognized real estate appraiser who shall have
the designation MAI (Member American Institute of Real Estate Appraisers) Said
report shall contain the fair market value rent for the demised premises,
reduced to a square footage rental which shall be multiplied by 3,216 square
feet to arrive at the adjusted annual rent
If the Landlord does not wish to accept said adjusted rent as set forth
in said appraisal report, the Landlord shall have thirty (30) days to obtain his
own real estate appraisal prepared by an MAI on the same basis as set forth
hereinabove.
If the two appraisals are within ten (10%) percent, then they shall be
averaged and that figure shall constitute the adjusted rent. If the two
appraisals are not within ten (10%) percent, then the two appraisers shall meet
and if they can not agree upon a fair rental value, they shall appoint a third
appraiser who shall have thirty (30) days to prepare an appraisal report and the
fair market value in said report shall be binding upon the parties thereto and
shall constitute the adjusted rent, unless said third appraisal is less than the
lower appraisal or higher than the higher appraisal. In such event, it shall be
added to the other two and the adjusted rent shall be the average of all three.
In the event that the two appraisers can not agree upon a third
appraiser, the selection shall be made by the then current President of the
Connecticut Chapter of the Society of Real Estate Appraisers.
In the event that said appraisal procedure shall not be complete, for
any reason, prior to the commencement of any adjustment period, then, in that
event, the pre-existing rent shall be paid until the procedure is complete and
the adjusted portion of the rent shall be paid retroactively to the commencement
of the adjustment period. Said retroactive payment shall be made within ten (10)
days of the resolution of the rent adjustment procedure.
<PAGE>
2
Notwithstanding anything to be contrary, in the event that either party
does not provide an appraisal report within the time periods set forth, then, in
that event, the rent. for the adjustment period for which the reports are
required shall be as set forth in whichever appraisal report has been provided.
it is understood that time is of the essence in providing said reports.
It is agreed that each party shall pay for: its own appraisal report
and in the event a third appraisal is necessary, the costs thereof shall be
borne equally.
<PAGE>
1
EXHIBIT D
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, and elevators of
the Building are limited to ingress to and egress from the tenants' premises for
the tenants and their employees, licensees and invitees, and no tenant shall
use, or permit the use of, the entrances, corridors or elevators for any other
purpose. No tenant shall invite to the tenant's premises, or permit the visit
of, persons in such numbers or under such conditions as to interfere with the
use and enjoyment of any of the plazas, entrances, corridors, elevators and
other facilities of the Building by other tenants. Fire exits and stairways are
for emergency use only, and they shall not be used for any other purpose by the
tenants, their employees, licensees or invitees. No tenant shall encumber or
obstruct or permit the encumbrance or obstruction of any of the sidewalks,
plazas, entrances, corridors, elevators, tire exits or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of the
tenant, shall be paid by such tenant.
3. No awning or other projection over or around the windows and doors
shall be installed by any tenant, and only such window blinds as are permitted
by the Landlord shall be used in a tenant's premises. Any floor covering shall
be laid in tenant's premises only in a manner approved by the Landlord.
4. No machinery or mechanical equipment other than ordinary portable
business machines, may be installed or operated in any tenant's premises without
Landlord's prior written consent, and in no case (even where the same are of a
type so accepted or as so consented to by the Landlord) shall any machines or
mechanical equipment be so placed or operated as to disturb other tenants; but
machines and mechanical equipment which may be permitted to be installed and
used in a tenant's premises shall be so equipped, installed and maintained by
such tenant as to prevent any disturbing noise, vibration or electrical or other
interference from being transmitted from such premises to any other area of the
Building.
5. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building services or the proper and economic
heating, cleaning or other servicing of the Building or the premises, or the use
or enjoyment by any other tenant of any of the premises, nor shall there be
installed by any tenant any ventilating, air conditioning, electrical or other
equipment of any kind, which, in the judgment of the Landlord, might cause any
such
<PAGE>
2
impairment or interference. No dangerous, inflammable, combustible or
explosive object or material shall be brought into the Building by any tenant or
with the permission of any tenant
6. Hand trucks not equipped with rubber tires and side guards shall not
be used within the Building.
7. There shall be no smoking permitted within the Building.
8. The Landlord reserves the right to rescind, alter or waiver any rule
or regulation at any time prescribed for the Building, when in its judgment it
deems it necessary, desirable or proper for its best interest and for the best
interest of the tenant, and no alteration or waiver of any rule or regulation in
favor of one tenant shall operate as an alteration or waiver in favor of any
other tenant. The Landlord shall not be responsible to any tenant for the
nonobservance or violation by any other tenant of any of the rules and
regulations at any time prescribed for the Building.
<PAGE>
AMENDMENT TO LEASE
(Cover Sheet Attached)
Whereas, tenant desire to lease an additional 1,024 sq. ft. previously
shown on Exhibit C as CHCP Medical record storage and Landlord is desirous of
leasing said space to tenant, both Tenant and Landlord agree that the square
footage of lease will be increased to 5,194 sq. ft. and the percentage of common
area space and excess tax etc. shall be increased to 10.64%.
Additionally, Tenant and Landlord agree that Tenant shall be
responsible for 100% of the utilities for this 5,194 sq. ft. which is 26.78% of
the commonly metered space occupied by OptiCare Eye Health Centers, Inc., Rehab
Health, P.C., and Urology Specialists, P.C.
The other terms and conditions of lease dated September 1, 1995 shall
remain the same.
LANDLORD:
FRENCH'S MILL ASSOCIATES II, LLP
By: /s/ W. Scott Peterson
---------------------
W. SCOTT PETERSON
Managing Partner
Date: 9-30-97
-------
TENANT:
OPTICARE EYE HEALTH CENTERS, INC.
By: /s/ Dean Yimoyines
------------------
DEAN YIMOYNES
President
Date: 9/30/97
<PAGE>
LEASE AGREEMENT
DATED: 9/1 , 1995
BETWEEN
FRENCH'S MILL ASSOCIATES II (LANDLORD)
AND
OPTICARE EYE HEALTH CENTER, P.C. - WATERBURY (TENANT)
PROPERTY:
160 ROBBINS STREET (LOWER LEVEL, 4,170 S.F.)
WATERBURY, CONNECTICUT
INDEX
ARTICLE PAGE
ARTICLE I
DEMISED, PREMISES, TERM, OPTION, RENTS...........................1
ARTICLE II
USE AND CONDITION................................................2
ARTICLE III
CONSTRUCTION OF THE DEMISED PREMISES.............................2
ARTICLE IV
UTILITIES........................................................3
ARTICLE V
ADJUSTMENTS OF RENT..............................................3
ARTICLE VI
SUBORDINATION, NOTICE TO MORTGAGEES..............................5
ARTICLE VII
QUIET ENJOYMENT..................................................6
ARTICLE VIII
ASSIGNMENT.......................................................6
ARTICLE IX
COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES......7
ARTICLE X
FIRE INSURANCE COMPLIANCE - WAIVER OF SUBROGATION................8
ARTICLE XI
RULES AND REGULATIONS............................................9
ARTICLE XII
TENANT' S ALTERATIONS...........................................10
<PAGE>
ARTICLE XIII
TENANT'S PROPERTY...............................................11
ARTICLE XIV
REPAIRS MID MAINTENANCE.........................................12
ARTICLE XV
INTERRUPTION OF SERVICES........................................13
ARTICLE XVI
ACCESS, CHANGES IN BUILDING FACILITIES, NAME....................14
ARTICLE XVII
NOTICE OF ACCIDENTS.............................................14
ARTICLE XVIII
INSURANCE, NON-LIABILITY AND INDEMNIFICATION....................15
ARTICLE XIX
DESTRUCTION OR DAMAGE...........................................16
ARTICLE XX
EMINENT DOMAIN..................................................16
ARTICLE XXI
SURRENDER.......................................................17
ARTICLE XXII
TENANT'S DEFAULT................................................17
ARTICLE XXIII
WAIVERS.........................................................19
ARTICLE XXIV
NO OTHER WAIVERS OR MODIFICATIONS...............................20
ARTICLE XXV
CURING TENANT'S DEFAULTS, ADDITIONAL RENT.......................21
ARTICLE XXVI
BROKER..........................................................21
<PAGE>
ARTICLE XXVII
NOTICES.........................................................21
ARTICLE XXIX
REPRESENTATIONS.................................................23
ARTICLE XXX
LIMITATIONS OF OBLIGATIONS......................................23
ARTICLE XXXI
CONSTRUCTION OF LEASE...........................................24
ARTICLE XXXII
WASTE...........................................................24
ARTICLE XXXIII
JANITORIAL SERVICES AND TRASH REMOVAL...........................25
ARTICLE XXXIV
PARKING.........................................................25
ARTICLE XXXV
SIGNAGE.........................................................25
RIDER I
ADJUSTMENT OF FIXED MINIMUM RENT................................27
<PAGE>
LEASE dated 9/1 , 1995, by and between FRENCH'S MILL ASSOCIATES II, a
Connecticut general partnership having a principal place of business in the
City of Waterbury, County of New Haven and State of Connecticut (hereinafter
referred to as "Landlord"), and OPTICARE EYE HEALTH CENTER, P.C. - WATERBURY, a
Connecticut corporation having a principal place of business in the said City
of Waterbury, County of New Haven and State of Connecticut (hereinafter
referred to as "Tenant").
W I T N E S S E T H:
ARTICLE I
DEMISED, PREMISES, TERM, OPTION, RENTS
1.1. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, space in the Building (hereinafter defined) owned by Landlord and
located at 160 Robbins Street, Waterbury, Connecticut. The building is
hereinafter referred to as "Building"; and the land and upon which the Building
is located is hereinafter referred to as "Land", said Building and Land being
more particularly bounded and described on Exhibit A, and shown on Exhibit B,
both being attached hereto and hereby made a part hereof. The Building, Land
and any other improvements thereon are hereinafter collectively referred to as
the "Project".
1.2. The space hereby leased to Tenant is situated on the lower level
of the building and consists of 4,170 square feet and is shown on Exhibit C
attached hereto and hereby made a part hereof. Said space, together with all
fixtures and equipment which at the commencement or during the term of this
Lease are thereto attached (except items not deemed to be included therein and
removable by Tenant as provided in Article XIII), constitute and are
hereinafter called the "Demised Premises". In addition, Tenant shall have, as
appurtenant to the Demised Premises, the non-exclusive right to use, and permit
its invitees to use in common with others, public or common lobbies, hallways,
stairways, and passenger elevators in the Building, subject however, to all
reasonable rules and regulations from time to time established by Landlord.
1.3. This Lease shall be for a term of fifteen (15) years, commencing
September 1, 1995.
1.4. During the first five (5) years of the leasehold term, the Tenant
agrees to pay to the Landlord a fixed minimum annual rental of the sum of
Fifty-Four Thousand Two Hundred Ten & 00/100Oths Dollars ($54,210.00), payable
in equal monthly installments of Four Thousand Five Hundred Seventeen &
50/100ths Dollars ($4,517.50) each, on the first day of each month, in advance.
Thereafter, the fixed minimum annual rental shall be adjusted in accordance
with Rider' I attached hereto and made a part hereof.
<PAGE>
1.5 Tenant shall have the option to extend this Lease for two (2)
additional terms of ten (10) years each on the same terms and conditions as
herein provided. Said option shall be exercised by written notice from Tenant to
Landlord at least six (6) months prior to the expiration of the then existing
leasehold term. If Tenant holds over without having or exercising said option to
extend, it shall be considered a month-to-month Tenant and shall pay the
adjusted rental as set forth in Rider I herein, plus twenty-five percent (25%)
of the adjusted rental, as a privilege for holding over.
1.6. Tenant agrees to pay to Landlord the fixed rent and additional
rent herein reserved promptly as and when the same shall become due and payable
without demand therefor and without any abatement, deduction or set off, except
as specifically provided for herein.
1.7. If the date Tenant is obligated to commence payment of rent falls
on a day other than the first day of a calendar month, the fixed rent for such
calendar month shall be prorated (on a thirty day basis) so that all future
rental payments shall be made on the first day of a calendar month and the
leasehold term shall be extended accordingly.
1.8. Tenant agrees that it, its permitted assignees or sub-lessees
shall use the Demised Premises for the sole and exclusive purpose of conducting
therein all office uses, and all activities reasonably associated therewith.
ARTICLE II
USE AND CONDITION
2.1. If any governmental license or permit, other than a Certificate of
Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises, or any part thereof, and if failure to secure
such license or permit would in any way affect Landlord, Tenant, at its'
expenses, shall duly procure and thereafter maintain such license or permit and
submit the same to inspection by Landlord. Tenant shall at all times comply with
the terms and conditions of each such license or permit.
2.2. Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Demised Premises, in violation of the Certificate
of Occupancy for the Demised Premises, or for the Building or in violation of
any rules and/or regulations prescribed in Exhibit D, annexed hereto.
ARTICLE III
CONSTRUCTION OF THE DEMISED PREMISES
3.1. The Demised Premises shall be delivered by Landlord to Tenant
as-is.
2
<PAGE>
ARTICLE IV
UTILITIES
4.1. The Tenant shall be solely responsible for all charges for
electric, light and power, heating of hot water and the cost for the operation
of heating and air conditioning to the Demised Premises. Landlord shall pay for
water consumed on the Demised Premises.
ARTICLE V
ADJUSTMENTS OF RENT
5.1. "Taxes" shall mean the real estate taxes imposed upon the Project
by any governmental bodies or authorities having power to tax the Project. If
at any time during the term of this Lease the methods of taxation prevailing at
the commencement of the term hereof shall be altered so that in lieu of, or as
an addition to or as a substitute for the whole or any part of the taxes,
assessments, levies, impositions, or charges, now levied, there shall be
levied, assessed and imposed, (i) a tax assessment, levy, imposition, or charge
wholly or partially as a capital levy or otherwise on the rents received
therefrom or (ii) a license fee measured by the rent payable by Tenant to
Landlord, or (iii) any other such additional or substitute tax, assessment,
levy, imposition or charges as the part thereof so measured or based shall be
deemed to be included within the term "Tax" for the purpose thereof. Tenant
shall have no obligation to pay income, estate or franchise taxes of the
Landlord.
5.2. "Base Tax" imposed upon the Project shall mean the amount of the
taxes payable on the Grand List of October 1, 1986, in the amount of
$122,791.46.
5.3. "Excess Tax" or "Excess Taxes" shall mean any amount of Taxes
payable by Landlord upon the Project in any Tax Year in excess of the Base Tax.
5.4. "Tax Year" shall mean a twelve (12) month period beginning on
October 1st of one year and ending on September 30th of the following year.
5.5. "Tenant's Proportionate Share" of the Excess Tax shall be ten
percent (10%), which is 4,170 square feet divided by 41,720, the total rentable
square feet in the Building.
5.6. "Permanent Improvements" shall mean any leasehold improvement
made by Tenant, unless such improvement shall be assessed against the Tenant by
the taxing authority as personal property.
5.7. Tenant agrees throughout the term of this Lease to pay to
Landlord, Tenant's Proportionate Share of any Excess Taxes. (That amount
payable by Tenant is hereinafter called
3
<PAGE>
the "Tax Payment"). In the event this Lease shall commence or terminate during
any Tax Year, then Tenant's Tax Payment for that Tax Year shall be prorated on
a twelve (12) month basis. Tenant agrees to pay the amount of such Tax Payment
to the Landlord within thirty (30) days after submission of a bill therefor,
which shall be paid in two installments: July 1 and February 1 of each year.
5.8. If Landlord shall receive a refund for any Tax Year of any Excess
Tax in which a Tax Payment shall have been made by Tenant, Landlord shall repay
to Tenant, Tenant's Proportionate Share of such refund after deducting
therefrom Tenant's Proportionate Share of the costs and expenses (including but
not limited to attorney's fees and appraiser's fees) of obtaining such refund.
5.9. "Operating Expense Charges" shall include the following:
(i) cleaning of all common areas which are not in the
exclusive possession and control of any one tenant, i.e., bathrooms,
stairways, elevator, hallways, lobby, garage, storage areas, all
parking areas;
(ii) cost of all common area utilities including common area
lighting, common area electrical, water and elevator maintenance;
(iii) maintenance and repair of all interior and exterior
structural and mechanical components of Building including heating
system, electrical system, plumbing system, sprinkler system and
air-conditioning system;
(iv) trash removal, landscape maintenance and parking lot
maintenance;
(v) cost of fire, liability and extended coverage insurance
for the Project;
(vi) management fees and any miscellaneous charges and
expenses which legitimately relate to the maintenance, repair and
operation of the building and parking areas.
5.10. "Base Operating Expense Charges" shall mean the amount of said
charges as defined herein incurred by the Landlord during the twelve (12) month
period beginning January 1, 1987, and ending on December 31, 1987, in the
am6unt of Twenty-Seven Thousand Three Hundred Thirty-Four and 45/100ths Dollars
($27,334.45).
5.11. "Excess Operating Expense Charges" shall mean any increase in
the amount of said charges incurred by the Landlord over the Base Operating
Expense Charges, as herein above defined.
5.12. Tenant's proportionate share of the "Excess Operating Expense
Charges" shall be
4
<PAGE>
ten percent (10%) which is 4,170 square feet divided by 41,720, the total
rentable square feet in the Building.
5.13. Tenant agrees throughout the term of this Lease to pay to
Landlord Tenant's proportionate share of any Excess Operating Expense Charges
as defined herein in accordance with tenant's proportionate share as defined
herein, which is ten percent (10%).
5.14. Tenant agrees to pay the amount of Excess Operating Expense
Charges to the Landlord within thirty (30) days after the submission of a bill
therefor.
5.15. Said bill for Excess Operating Expense Charges shall be sent
annually to the Tenant and shall be accompanied by a detailed statement from
the Landlord outlining the Operating Expense Charges.
5.16. The Excess Operating Expense Charges allocated to the Tenant
each year shall also serve as an estimate of said charges for the next calendar
year. Each calendar year said charge shall be divided by twelve (12) and shall
be payable in twelve (12) equal monthly installments commencing January 1 of
each year. At the end of each calendar year, when the above described Excess
Operating Expense Charges accounting is made, the Tenant shall receive credit
for said estimated portion already paid during the year and the Tenant shall be
liable only for the remainder of its actual allocated charge. If the portion
already paid exceeds the allocated charge, then the Tenant shall receive a
reimbursement for any amount over-paid. The intent hereof is that the Tenant
will be paying on a monthly basis an estimate of the Tenant's share of the
current year's Excess Operating Expense Charges based upon the previous year's
actual operating charges.
5.17. Tenant shall have the right, at any reasonable time, to examine
the books of the Landlord to verify these charges.
ARTICLE VI
SUBORDINATION, NOTICE TO MORTGAGEES
6.1. This Lease shall be subject and subordinate at all times to any
and all mortgage or mortgages hereafter placed on or against the Demised
Premises and to all renewals, modifications, consolidations, replacements and
extensions thereof, which said mortgage or mortgages may be in any principal
amount or amounts, provided that the mortgagee or mortgagees is or are a
lending institution or institutions and/or an insurance company or companies
duly authorized to do business in the State of Connecticut
6.2 In confirmation of such subordination, the Tenant shall execute
and deliver promptly any certificate or instruments subordinating this Lease
and the leasehold estate hereby
5
<PAGE>
granted to any such mortgage or mortgages, and to the lien thereof, that the
Landlord may request; provided, always however, that this Article VI is and
shall be self-executing, and that this Lease is and shall be subject and
subordinate to all such mortgage or mortgages, without the execution by the
Tenant of any instrument or instruments whatsoever.
Notwithstanding said subordination, this Lease shall continue in full
force and effect, and the Tenant's rights hereunder shall not be disturbed
except as in this Lease provided, and such nondisturbance status shall be
acknowledged by the mortgagee to whom the subordination runs.
ARTICLE VII
QUIET ENJOYMENT
7.1. So long as Tenant pays all of the fixed rent and additional rent
due hereunder and performs all of Tenant's other obligations hereunder, Tenant
shall peaceably and quietly have, hold and enjoy the Demised Premises. This
covenant shall be binding upon the Landlord only so long as Landlord is in
possession and collecting rent from Tenant and all liability of Landlord
hereunder shall cease upon a transfer of Landlord's interest in the Building
but shall thereafter be binding upon the transferee of Landlord's interest.
ARTICLE VIII
ASSIGNMENT
8.1. The Tenant shall have no right to assign this Lease, or sublet
the premises, unless it shall first, in writing, request the Landlord for
permission to do so, which permission shall not be unreasonably withheld or
delayed. If such request is reasonable, the Landlord, at his option, shall
either:
(i) give the Tenant such permission, and thereafter upon such
assignment or subletting, the Tenant shall continue to be as fully
responsible for all the obligations under this Lease, as though it
continued to occupy the Demised Premises;
(ii) terminate this Lease, in which case it shall notify the
Tenant of such election, and this Lease shall, by virtue of such
notice, terminate on the last day of the month in which such notice is
given.
8.2. In the event Landlord consents to an assignment or sublet by the
Tenant as set forth above:
(i) Tenant covenants and agrees that immediately upon
entering into said
6
<PAGE>
assignment or sublease, Tenant will deliver to the Landlord a true and
correct copy of same;
(ii) In the event that the Tenant shall default in the
performance of any of the terms, provisions, covenants, agreements or
conditions of this Lease on the part of the Tenant to be performed,
and should default continue for the respective periods in this Lease
set forth, the Landlord shall have the right, at its option, forthwith
and without notice, to collect the rentals and other charges from the
subtenant or assignee, and apply them to curing the default or
defaults of the Tenant hereunder until such default or defaults have
been cured.
ARTICLE IX
COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES
9.1. Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and at
its expense shall comply with all laws and requirements of public authorities
which shall, with respect to the Demised Premises or the use and occupancy
thereof, or the abatement of any nuisance, impose any violation, order or duty
on Landlord or Tenant arising from (i) Tenant's use of the Demised Premises,
(ii) the manner of conduct of Tenant's business or operation of its
installations, equipment or other property therein, (iii) any cause or
condition created by the Tenant, or (iv) breach of any of Tenant's obligations
hereunder. However, Tenant shall not be required to make any structural or
other substantial change in the Demised Premises unless the requirement arises
from a cause or condition referred to in clauses (i), (ii), (iii), or (iv)
above. Furthermore, Tenant need not comply with any such law or requirement of
public authority so long as Tenant shall be contesting the validity thereof, or
the applicability thereof to the Demised Premises, in accordance with Article
9.2. Landlord, at its expense, shall comply with all other such laws and
requirements of public authorities as shall affect the Demised Premises, but
may similarly contest the same. Said contest shall not affect Tenant's ability
to operate its business.
9.2. Tenant may, at its expense, (and if necessary, in the name of but
without expense to Landlord) contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings, provided that:
(i) Landlord shall not be subject to criminal penalty or to
prosecution for a crime nor shall the Demised Premises or any part
thereof be subject to being condemned or vacated, by reason of
non-compliance or otherwise by reason of such contest;
(ii) Such noncompliance or contest shall not constitute or
result in any violation of any superior mortgage, or if such superior
mortgage shall permit such noncompliance or contest on condition of
the taking of action or furnishing of security by Landlord, such
action shall be furnished at the expense of Tenant; and
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(iii) Tenant shall keep Landlord advised as to the status of
such proceedings.
ARTICLE X
FIRE INSURANCE COMPLIANCE - WAIVER OF SUBROGATION
10.1. Tenant shall not violate, or permit the violation of, any
condition imposed by the fire insurance policies carried by Landlord with
respect to the Project and shall not do, or permit anything to be done, or keep
or permit anything to be kept in the Demised Premises which would subject
Landlord to any liability or responsibility for personal injury or death or
property damage, or which would increase the fire or other casualty insurance
rate on the Building or the property therein over the rate which would
otherwise then be in effect (unless Tenant pays the resulting premium as
provided in Section 10.3) or which would result in insurance companies of good
standing refusing to insure the Building or any of such property in amounts
reasonably satisfactory to Landlord.
10.2. Tenant agrees to carry fire insurance polices with extended
coverage, with respect to Tenant's fixtures, and any leasehold improvements
made by Tenant, in an amount equal to their replacement value. Landlord shall
be named as an additional insured upon each such policy. Said policies shall
contain a provision whereby the insurer agrees not to cancel such insurance
without ten (10) days prior notice to Landlord. On or before the commencement
date of this Lease, Tenant shall furnish Landlord with a certificate evidencing
the aforesaid insurance coverage and renewals shall be furnished to Landlord
within ten (10) days of the expiration date of such policy for which a policy
was to have been furnished. In case a fire loss occurs, then and in such event
if there is no loss to Landlord, the Landlord agrees to endorse any and all
drafts in connection with such loss.
10.3. Landlord and Tenant shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage or rent
insurance policy obtained by it and covering the Building, the Demised Premises
or the personal property, fixtures and equipment located therein or thereon,
pursuant to which the respective insurance companies waiver subrogation or
permit the insured, prior to any loss, to agree with a third party to waive any
claim it might have against said third party. The waiver of subrogation or
permission for waiver of any claim hereinbefore referred to shall extend to the
agents of each party and its employees and, in the case of Tenant, shall also
extend to all other persons and entities occupying or using the Demised
Premises in accordance with the terms of this Lease.
In the event that Tenant shall be unable at any time to obtain any of
the provisions referred to above in any of its insurance policies, Tenant shall
cause Landlord to be named in such policy or policies as one of the assureds.
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Each party hereby releases the other with respect to any claim
(including a claim for negligence) which it might otherwise have against the
other party for loss, damage or destruction with respect to its property by
fire or other casualty (including rental value or business interest, as the
case may be) occurring during the term of this Lease.
This Paragraph shall not apply if it violates or invalidates the terms
of any insurance coverage carried by either party.
10.4. Tenant hereby agrees that in the event that the premium charged
to Landlord for any and all insurance policies carried by Landlord and covering
the Project, of which the Demised Premises are a part, shall increase as a
result of any activity in the use of the Demised Premises by Tenant, whether or
not consented to by Landlord, Tenant shall pay the cost of any such increase
and such increase shall be paid within fifteen (15), days next following
Landlord's billing of same.
10.5. It is understood and agreed by Tenant that Tenant will comply at
Tenant's sole cost and expense with all rules, regulations, ordinances or
requirements of the Connecticut Board of Fire Underwriters or any other similar
body having jurisdiction over the Building of which the Demised Premises are a
part, with respect to the Demised Premises. Tenant shall not be responsible for
any structural repairs or alterations unless such are required as a result of
Tenant's use.
10.6 Landlord shall maintain during the term of this Lease fire
insurance policies with extended coverage in an amount equal to at least eighty
percent (80%) of the replacement cost of the Building. Landlord shall also
maintain liability insurance with respect to the Building and the Land in an
amount of at least One Million Dollars ($1,000,000.00) on a flat limit basis.
ARTICLE XI
RULES AND REGULATIONS
11.1 Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations annexed hereto as Exhibit D, and such
reasonable and lawful changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate
in writing to Tenant, which do not unreasonably affect the conduct of Tenant's
business in the Demised Premises and which do not derogate the Tenant's use of
the space.
11.2. Nothing in this Lease contained shall be construed to impose
upon Landlord any duty or obligation to Tenant to enforce the Rules and
Regulations or the terms, covenants or conditions in any other Lease, as
against any other tenant, and Landlord shall not be liable to Tenant for
violation of the same by any other Tenant or its employees, agents or visitors.
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ARTICLE XII
TENANT' S ALTERATIONS
12.1. Tenant may from time to time during the term of this Lease, at
its expense, make such alterations, installations, substitutions, improvements
and decorations' (hereinafter collectively called "changes" and, as applied to
changes provided for in this Article, "Tenant's Alterations") in and' to the
Demised Premises, excluding structural changes, as Tenant may reasonably
consider necessary for the conduct of its business in the Demised Premises, on
the following conditions:
(i) The outside appearance or the strength of the Building or
the Demised Premises or of any of their structural parts shall not be
affected.
(ii) No part of the Building outside of the Demised Premises
shall be physically affected.
(iii) The proper functioning of any of the air-conditioning,
heating, or other mechanical, electrical, sanitary and other service
systems of the Demised Premises and Building shall not be adversely
affected by Tenant.
(iv) In performing the work involved in making such
alterations, Tenant shall be bound by and observe all of the
conditions and covenants contained in the following Sections of this
Article.
(v) Before proceeding with any Tenant Alterations, including
but not being limited to any change to the plumbing, air-conditioning,
electrical, or ventilating systems, Tenant shall submit to Landlord
plans and specifications for the work to be done, for Landlord's
written approval, which shall not be unreasonably withheld or delayed.
12.2. Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant's
Alterations to be performed in compliance therewith and with all applicable
laws and requirements of public authorities, and with all applicable
requirements of insurance bodies, and in good and workmanlike manner, using new
materials and equipment at least equal in quality and grade to the original
installations of the Building. Tenant's Alterations shall be performed in such
manner as not to interfere unreasonably with or delay and (unless Tenant shall
indemnify Landlord therefor) as not to impose any additional expense upon
Landlord in the construction, maintenance or operation of the Building.
Throughout the performance of Tenant's Alterations, Tenant, at its expense,
shall carry, or cause to be carried, worker's compensation insurance and
general liability insurance for any occurrence in or about the Building, of
which Landlord and its agents shall be named as
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parties insured, in such limits as Landlord may reasonably prescribe, with
insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord
with reasonably satisfactory evidence that such insurance is in effect at or
before the commencement of Tenant's Alterations and, on request, at reasonable
intervals thereafter during the continuance of Tenant's Alterations. If any of
Tenant's Alterations shall involve the removal of any fixtures, equipment or
other property in the Demised Premises which are not Tenant's Property (as
defined in Article XIII), such fixtures, equipment or other property shall be
promptly replaced at Tenant's expense, with new fixtures, equipment or other
property (as the case may be) of like utility and at least equal value unless
Landlord shall otherwise expressly consent in writing.
12.3. Tenant, at its expense and with diligence and dispatch shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenant's Alterations which shall be issued by the
then public authority having or asserting jurisdiction. Tenant shall defend,
indemnify and save harmless Landlord against any and all mechanics' and other
liens filed in connection with Tenant's Alterations, including the liens of any
conditional sales, or chattel mortgages upon or financing statements or
security agreements affecting any materials, fixtures, or articles so installed
in and constituting part of the Demised Premises and against all costs,
expenses and liabilities incurred in connection with any such lien, conditional
sale or chattel mortgage or financing statement or security agreement or any
action or proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of all such liens within fifteen (15) days after
Landlord makes written demand therefor.
ARTICLE XIII
TENANT'S PROPERTY
13.1. All fixtures, equipment, improvements and appurtenances attached
to or built into the Demised Premises at the commencement of or during the term
of this Lease, including but not limited to non-portable heating, plumbing,
electrical, ventilating and air-conditioning equipment, whether or not by or at
the expense of Tenant, shall be and remain a part of the Demised Premises,
shall be deemed the property of Landlord and shall not be removed by Tenant,
except as hereinafter in this Article expressly provided.
13.2. All moveable partitions, other business and trade fixtures, and
other machinery and equipment (excluding heating, air-conditioning and
ventilating), communications equipment, sound, stereo or other electrical
equipment and office equipment, which are installed in the Demised Premises by
or for the account of Tenant, without expense to Landlord, and can be removed
without structural damage to the Building and all furniture, furnishings and
other articles of moveable personal property owned by Tenant and located in the
Demised Premises (all of which are sometimes called "Tenant's Property") shall
be and shall remain the property of the Tenant and may be removed by it at any
time during the term of this Lease; provided, that if
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any of Tenant's Property is removed, Tenant shall repair or pay the cost of
repairing any damage to the Demised Premises or to the Building resulting from
such removal.
13.3. At or before the Expiration Date, or the date of any earlier
termination of this Lease, or as promptly as practicable after such an earlier
termination date, Tenant's Property, except such items thereof as Tenant shall
have expressly agreed in writing with Landlord were to remain to become the
property of Landlord shall be removed by Tenant and Tenant shall repair any
damage to the Demised Premises or the Building resulting from such removal.
13.4. Any other items of Tenant's Property (except money, securities,
and other like valuables, including computers or related equipment), which
shall remain in the Demised Premises after the Expiration Date or after a
period of fifteen (15) days following an earlier termination date, may, at the
option of the Landlord, be deemed to have been abandoned, and in such case
either may be retained by Landlord as its property or may be disposed of,
without accountability, in such manner as Landlord may see fit at Tenant's
expense.
13.5. Tenant shall be responsible for and shall pay before delinquency
all municipal, county or state taxes assessed during the term of this Lease
against any personal property of any kind, owned by or placed in, upon or about
the Demised Premises by the Tenant.
13.6. Landlord shall not be liable for any damages to property of
Tenant or of others located on the Demised Premises, nor for the loss of or
damage to any property of Tenant or of others by theft or otherwise, except if
caused by a negligent act of Landlord or his agents. Landlord shall not be
liable for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain, or snow or
leaks from any part of the Demised Premises or from the pipes, appliances or
plumbing works or from the roof, street or subsurface or from any other place
or by dampness or by any other cause of whatsoever nature, except if caused by
a negligent act of Landlord or his agents. Landlord shall not be liable for any
such damage caused by other tenants or persons in the Demised Premises,
occupants or adjacent property to the Project or the public, or caused by
operation in construction of any private, public or quasi-public work. All
property of Tenant kept or stored in the Demised Premises shall be so kept or
stored at the risk of Tenant only.
ARTICLE XIV
REPAIRS MID MAINTENANCE
14.1. Tenant shall take good care of the Demised Premises.
14.2. Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the load per square foot which such floor was designed
to carry and which is allowed by law.
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14.3. Business machines and electronic, sound and mechanical equipment
belonging to Tenant which cause noise or vibration that may be transmitted to
the structure of the Building or to the Demised Premises to such a degree as to
be reasonably objectionable to Landlord shall be placed and maintained by the
party owning the machines or equipment at such party's expense, in settings of
cork, rubber or spring type vibration eliminators sufficient to eliminate noise
or vibration. In the event of any violation, Tenant shall be obligated to make
such repairs to the Demised Premises and Building, resulting therefrom and to
take all steps reasonably necessary to eliminate such noise or vibration.
14.4. Tenant shall not move any safe1 heavy equipment or bulky matter
in or out of the Building without the Landlord's prior written consent1 which
consent Landlord agrees not to unreasonably withhold or delay. All such moving
shall be made during hours which will least interfere with the normal
operations of the Building, and all damage caused by such movement shall be
promptly repaired by Tenant at Tenant's expense.
14.5. Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease, or required by Law, to make in or to any portion of
the Building or the Demised Premises, or in or to the fixtures, equipment or
appurtenances of the Building of the Demised Premises. Landlord agrees to use
due diligence with respect thereto and shall perform work, except in case of
emergency, at times reasonably convenient to Tenant and otherwise in such
manner as will not materially interfere with Tenant's use of the Demised
Premises.
14.6. Tenant shall receive deliveries of goods and merchandise only in
such manner, at such times and in such areas as will not unreasonably interfere
with the operation of the Building or the tenants thereof.
ARTICLE XV
INTERRUPTION OF SERVICES
15.1. Landlord reserves the right, without any liability to Tenant
therefor, to stop service of any of the heating, ventilating, air-conditioning,
electric, sanitary, elevator, or any of the other services required of Landlord
under this Lease, whenever and for so long as may be necessary, by reason of
accident, emergencies, strikes, or the making of repairs or changes which
Landlord is required by this Lease or by law to make or in good faith deems
necessary, by reason of difficulty in securing proper supplies of fuel, steam,
water, electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control.
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ARTICLE XVI
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
16.1. Except for inside surfaces of the Demised Premises any access to
the lobby and to elevators of the Building, including exterior Building walls,
core corridor walls and doors and any core corridor entrance, any terraces or
roofs adjacent to the Demised Premises, and any space in or adjacent to the
Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other Building facilities, and the use
thereof, as well as access thereto through the Demised Premises for the purpose
of operation, maintenance, decoration and repair, are reserved to Landlord.
16.2. Tenant shall permit Landlord to install, use and maintain pipes,
ducts and conduits within the demised walls, bearing columns and ceilings of
the Demised Premises.
16.3. Landlord or Landlord's agent shall have the right, upon request,
to enter and/or pass through the Demised Premises or any part thereof, after
notice and at reasonable times during reasonable hours, (i) to examine the
Demised Premises and to show them to the fee owners, holders of mortgages, or
prospective purchasers, mortgagees, or lessees of the Building as an entirety,
and (ii) for the purpose of making such. repairs or changes or doing such
repainting in or to the Building or its facilities as may be provided for by
this Lease or as Landlord may be required to make by law or in order to repair
and maintain the Building or its fixtures or facilities. Landlord shall be
allowed to take all materials into and upon the Demised Premises that may be
required for such repairs, changes, repainting or maintenance, without
liability to Tenant. Landlord shall also have the right to enter on and/or pass
through the Demised Premises, or any part thereof, at such times as such entry
shall be required by circumstances or emergency affecting the Demised Premises
or the Building.
16.4. During the period of six (6) months prior to the expiration date
of this Lease, Landlord may exhibit the Demised Premises to prospective
tenants.
16.5. Landlord reserves the right, at any time after completion of the
Building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well
as in or to the street entrances, halls, passages, elevators, and stairways
thereof, as it may deem necessary or desirable except that such changes will
not interfere with Tenant's access to the Demised Premises, or use thereof.
ARTICLE XVII
NOTICE OF ACCIDENTS
17.1. Tenant shall give notice to Landlord, promptly after Tenant
learns thereof, of (i) any accident in or about the Demised Premises for which
Landlord might be liable, (ii) all fires
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in the Demised Premises, (iii) all damages to or defects in the Demised
Premises, including the fixtures, equipment and appurtenances thereof, for the
repair of which Landlord might be responsible, and (iv) all damage to or
defects in any parts or appurtenances of the Building's sanitary, electrical,
heating, ventilating, air-conditioning, elevator and other systems located in
or passing through the Demised Premises or any part thereof.
ARTICLE XVIII
INSURANCE, NON-LIABILITY AND INDEMNIFICATION
18.1. Landlord shall not be liable to Tenant for any injury or damage
to Tenant or to any other person or for any damage to or loss (by theft or
otherwise) of, any property of Tenant or of any other person, irrespective of
the cause of such injury, damage, or loss, unless caused by or due to the
negligent act or omission of Landlord, provided, however, that with respect to
injury, damage or loss resulting from causes set forth in Article 10.3., the
waiver by Tenant provided in Article 10.3 shall govern. No property, other than
such as might normally be brought upon or kept in the Demised Premises as an
incident to the reasonable use of the Demised Premises for the purposes herein
permitted, will be brought upon or be kept in the Demised Premises.
18.2. Tenant shall indemnify and save harmless Landlord and its agents
against and from (a) any and all claims (i) arising from the conduct or
management of the Demised Premises by Tenant, or of any business therein by
Tenant, or any work or thing whatsoever done or any condition created by Tenant
in or about the Demised Premises, or (ii) arising from any negligent or
otherwise wrongful act or omission of Tenant or any of its subtenants or
licensees or its or their employees, agents or contractors, and (b) all costs,
expenses and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon. In case any action or proceeding be
brought against Landlord, by reason of any such claim, Tenant, upon notice from
Landlord, shall resist and defend such action or proceeding.
18.3. In addition to the foregoing indemnification, Tenant agrees that
Tenant will, at its own costs and expense, maintain insurance protection and
indemnify Landlord and Tenant against any and all claims for injury and damage
to persons or property or for the loss of life or property occurring on, in or
about the Demised Premises, and arising out of the act, negligence, omission,
non-feasance, or malfeasance, of Tenant, its employees, agents, contractors1
customers, licensees and invitees. Such insurance shall be carried in a minimum
amount of $5,000,000.00 combined single limit and property damage per
occurrence. All such insurance shall be issued by insurers of recognized
responsibility authorized to do business in the State of Connecticut and shall
name Landlord as an additional insured and contain a provision whereby the
insurer agrees not to cancel such insurance without ten (10) days prior notice
to Landlord. On or before the commencement date of this Lease, Tenant shall
furnish Landlord with a certificate evidencing the aforesaid insurance coverage
and renewals shall be furnished to
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Landlord within ten (10) days of the expiration date of such policy for which a
policy was to have been furnished.
18.4. This Lease and the obligations of either party hereunder (except
for payment of money) shall be in no wise affected, impaired or excused because
Landlord is unable to fulfill, or is delayed in fulfilling, any of its
obligations under this Lease by reason of strike, other labor trouble,
governmental pre-emption or priorities or other controls or shortages of fuel,
supplies or labor resulting therefrom, or other like causes beyond Landlord's
reasonable control.
ARTICLE XIX
DESTRUCTION OR DAMAGE
19.1. If the Building or the Demised Premises shall be damaged or
destroyed by fire or other casualty, and this Lease shall not have been
terminated as provided in Paragraph 19.3., Landlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises, at his expense,
with reasonable dispatch after notice to it of the damage or destruction;
provided, however, that Landlord shall not be required to repair or replace any
of Tenant's Property or any alteration or leasehold improvements made by
Tenant.
19.2. If the Demised Premises shall be partially damaged or partially
destroyed by fire or other casualty, the rents payable hereunder shall be
abated to the extent that the Demised Premises shall have been rendered
untenantable and for the period from the date of such damage or destruction to
the date the damage shall be repaired or restored.
19.3. If the Building or the Demised Premises shall be substantially
damaged or destroyed by fire or other casualty, then in either such case,
Landlord may terminate this Lease by giving Tenant notice to such effect within
ninety (90) days after the date of the casualty, which notice shall be given as
in this Lease provided, and thereupon the term of this Lease shall expire by
lapse of time upon the thirtieth (30th) day after notice is given and Tenant
shall vacate the Demised Premises and surrender the same to Landlord. The
Demised Premises and/or Building (whether or not the Demised Premises are
damaged), shall be deemed substantially damaged or destroyed if Landlord is
required by expend thirty (30%) percent or more of the full replacement value
of (a) the Building or (b) thirty (30%) percent or more of the full replacement
value of the Demised Premises immediately prior to such damage and destruction.
ARTICLE XX
EMINENT DOMAIN
20.1. If the whole of the Building or any part of the Demised Premises
shall be lawfully taken by condemnation or in any other manner for any public
or quasi-public use or purpose,
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this Lease and the term and estate hereby granted shall forthwith terminate as
of the date of vesting of title in such condemning authority (which date is
hereinafter also referred to as the date of taking), and the rents shall be
prorated and adjusted as of such date.
20.2. If any part of the Building, not including any part of the
Demised Premises, shall be taken by condemnation or in any other manner for any
public or quasi-public use or purpose, then at the Landlord's sole option to be
exercised within thirty (30) days after the effective date of such taking, this
Lease shall terminate as of the date of taking and the rents shall be prorated
and adjusted as of such date.
20.3. In the event of any taking, partial or whole, provided for in
this Article, all of the proceeds of any award, judgment or settlement payable
by the condemning authority shall be and remain the sole and exclusive property
of the Landlord, and Tenant shall not be entitled to any portion of such award,
judgment or settlement received by Landlord from such condemning authority.
Tenant, however, may pursue its own claim against the condemning authority for
any damage or award permitted under the laws of the State of Connecticut to be
paid to the Tenant without diminishing or reducing the award, judgment or
settlement receivable by Landlord.
ARTICLE XXI
SURRENDER
21.1. On the last day of the term of this Lease, or upon any earlier
termination of this Lease, or upon any re-entry by landlord upon the Demised
Premises, Tenant shall quit and surrender the Demised Premises to Landlord in
good order, condition, and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of Tenant's Property therefrom except as
otherwise expressly provided in this Lease.
ARTICLE XXII
TENANT'S DEFAULT
22.1. If Tenant shall make an assignment for the benefit of creditors,
or shall file a voluntary petition under any bankruptcy or insolvency law, or
any involuntary petition alleging an act of bankruptcy or insolvency shall be
filed against Tenant under any bankruptcy or insolvency law, or if a petition
shall be filed by or against Tenant under the organization provisions of the
United States Bankruptcy Act or under the provisions of any law of like import,
or if a petition shall be filed by Tenant under the arrangement provisions of
the United States Bankruptcy Act or under the provisions of any law of like
import, or whenever a permanent receiver of Tenant or of or for the property of
Tenant shall be appointed, then, Landlord, (a) at any time after receipt of
notice of the occurrence of any such event, or (b) if
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such event occurs without the acquiescence of Tenant, at any time after the
event continues for sixty (60) days, may give Tenant a notice of intention to
end the term of this Lease at the expiration of five (5) days from the date of
service of such notice of intention, and upon the expiration of said five (5)
day period this Lease and the term and estate hereby granted, whether or not
the term shall theretofore have commenced, shall terminate with the same
effects as if that day were the Expiration Date, but Tenant shall remain liable
for damages as provided in Section 22.3.
22.2. If Tenant shall default in the payment of any installment of
fixed rent, or in the payment of any additional rent or any other charge
payable by Tenant to Landlord, on any day upon which the same ought to be paid,
and such default shall continue for ten (10) days after notice or if Tenant
shall do or permit anything to be done, whether by action or inaction, contrary
to any of Tenant's obligations hereunder, and if such situation shall continue
and shall not be remedied by Tenant within thirty (30) days after Landlord
shall have given to Tenant a notice specifying the same, or, in the case of a
happening or default which cannot with due diligence be cured within a period
of thirty (30) days if Tenant shall not (i) within said thirty (30) day period
advise Landlord of Tenant's intention to institute all steps necessary to
remedy such situation, (ii) duly institute within said thirty (30) day period,
and thereafter diligently prosecute to completion all steps necessary to remedy
the same and (iii) complete such remedy within such time after the date of the
giving of said notice of Landlord as shall reasonably be necessary, or if any
event shall occur or any contingency shall arise whereby this Lease or the
estate hereby granted or the unexpired balance of the term hereof would by
operation of law or otherwise, devolve upon or pass to any person, firm or
corporation other than Tenant, except as expressly permitted by Article VIII,
or if Tenant shall abandon the Demised Premises (unless as a result of a
casualty), then in any of said cases set forth above, Landlord may (in addition
to any and all rights at law or in equity) re-enter and remove all persons and
property from the Demised Premises and such property may be removed and stored
in a public warehouse or elsewhere at the cost of, and for the account of
Tenant, all without being deemed guilty of trespass, or becoming liable for any
loss or damage which may be occasioned thereby.
22.3. Should Landlord elect to re-enter, as herein provided, or should
it take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, it may either terminate this Lease, or make such
alterations and repairs as may be necessary in order to relet the premises, and
relet said premises or any part hereof for such term or terms (which may be for
a term extending beyond the term of this Lease) and at such rental or rentals
and upon such other terms and conditions as Landlord in its discretion may deem
advisable; and, upon each such reletting, all rentals received by the Landlord
from such reletting shall be applied first, to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment
of any costs and expenses of such reletting, including brokerage fees and
attorney's fees and of costs of such alterations and repairs; third, to the
payment of rent due and unpaid hereunder, and the residue, of any, shall be
held by Landlord and applied in payment of future rent as the same may become
due and payable hereunder. If such rentals received from such
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reletting during any month be less than that to be paid during that month by
Tenant hereunder, Tenant shall pay any deficiency to Landlord. Such deficiency
shall be calculated and paid monthly. No such re-entry or taking possession of
said premises by Landlord shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for such previous
breach. Should Landlord at any time terminate this Lease for any breach, in
addition to any other remedies it may have, it may recover from Tenant all
damages it may incur, by reason of such breach, including the cost of
recovering the Demised Premises, reasonable attorney's fees, and including the
worth at the time of such termination of the excess, if any, of the amount of
rent and charges equivalent to rent reserved in this Lease for the remainder of
the stated term over the then reasonable rental value of the Demised Premises
for the remainder of the stated term, all of which amounts shall be immediately
due and payable from Tenant to Landlord. In determining the rent which would be
payable by Tenant hereunder, subsequent to default, the annual rent for each
year of the unexpired term shall be equal to the average annual fixed rental
and additional rents paid by Tenant from the commencement of the term to the
time of default.
22.4. The parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Demised Premises, and/or claim of injury or damage.
22.5. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of the Demised Premises by reason of the violation by Tenant of any
of the covenants or conditions of this Lease.
ARTICLE XXIII
WAIVERS
23.1. Without limiting the generality of any of the foregoing
provisions of this Lease, Tenant hereby waives any and all claims of any kind,
nature, or description against Landlord arising out of a failure of Landlord
from time to time to furnish any of the services required to be furnished by
Landlord under this Lease, including specifically, but without limitation,
air-conditioning, heat, electricity, elevator service and toilet facilities, so
long as the causes of any such failure are beyond the control of the Landlord
and not due to his negligence.
23.2. If Tenant is in arrears in payment of fixed rent or additional
rent hereunder, Tenant waives Tenant's right, if any, to designate the items
against which any payments made by
19
<PAGE>
Tenant are to be credited, and Tenant agrees that Landlord may apply any
payments made by Tenant to any items it sees fit, irrespective of and
notwithstanding any designation or request by Tenant as to the items against
which any such payments shall be credited.
23.3. Tenant hereby acknowledges that this Lease constitutes a
commercial transaction, as such term is used and defined in Section 52-278a of
the Connecticut General Statutes, as amended.
ARTICLE XXIV
NO OTHER WAIVERS OR MODIFICATIONS
24.1. The waiver by either party of any breach by Tenant of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. No covenant, term or condition of this Lease shall be
deemed to have been waived by Landlord unless such waiver be in writing by
Landlord.
24.2. No executory agreement hereafter made between Landlord and
Tenant shall be effective to change, modify, waive, release, discharge,
terminate or effect an abandonment of this Lease, in whole or in part1 unless
such executory agreement is in writing, refers expressly to this Lease and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge or termination or effectuation of the abandonment is
sought.
24.3. The following specific provisions of this section shall not be
deemed to limit the generality of any of the foregoing provisions of this
Article.
(a) No agreement to accept a surrender of all or any part of
the Demised Premises shall be valid unless in writing and signed by
Landlord. The delivery of keys to an employee of Landlord or of its
agents shall not operate as a termination of this Lease or a surrender
of the Demised Premises. If Tenant shall at any time request Landlord
to sublet the Demised Premises for Tenant's account, Landlord or its
agent is authorized to receive said keys for such purposes without
releasing Tenant from any of its obligations under this Lease, and
Tenant hereby releases Landlord of any liability for loss or damage to
any of Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach
of any obligation of this Lease shall not be deemed a waiver of such
breach.
20
<PAGE>
(c) No payment by Tenant or receipt by Landlord of a lesser
amount than the correct fixed rent or additional rent due hereunder
shall be deemed to be other than a payment on account, nor shall any
endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at
law provided.
ARTICLE XXV
CURING TENANT'S DEFAULTS, ADDITIONAL RENT
25.1. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and~at the
expense of Tenant, without notice, in a case of emergency and in any other case
only if such default continues after the expiration of (i) ten (10) days from
the date Landlord gives Tenant notice of intention so to do, or (ii) the
applicable grace period provided in Section 22.2 or elsewhere in this Lease for
cure of such default, whichever occurs later.
25.2. Bills for any expenses incurred by Landlord in connection with
any such performance by it for the account of Tenant, and bills for all costs,
expenses, and disbursements of every kind and nature whatsoever, including
reasonable counsel fees, involved in collection or endeavoring to collect the
fixed rent or additional rent or any part hereof or enforcing or endeavoring to
enforce any rights against Tenant, under or in connection with this Lease, or
pursuant to law, including any such cost, expense and disbursement involved in
instituting and prosecuting summary proceedings, as well as bills for any
property, material, labor or services provided, furnished, or rendered, by
Landlord to Tenant monthly, or immediately, at Landlord's option, and, shall be
due and payable in accordance with the terms of such bills, as additional rent.
ARTICLE XXVI
BROKER
26.1. Tenant covenants, warrants and represents that there was no
broker involved in this Lease.
ARTICLE XXVII
NOTICES
21
<PAGE>
27.1. Any notice, statement, demand or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this Lease or pursuant to any applicable law or requirement of public
authority, shall be in writing, (whether or not so stated elsewhere in this
Lease) and shall be deemed to have been properly given, rendered or made, if
sent by certified mail, return receipt requested, addressed to the other party
at the address hereinafter set forth, and shall be deemed to have been given,
rendered or made on the day so mailed, unless mailed outside of the State of
Connecticut, in which case it shall be deemed to have been given, rendered or
made on the expiration of the normal period of time for delivery of mail from
the post office of origin to the post office of destination. Either party may,
by notice as aforesaid, designate a different address or addresses for notice,
statements, demand or other communications intended for it.
27.2. Address of Tenant to which notices shall be sent:
Attn.: Dean Yimoyines
Opticare Eye Health Center, P.C. - Waterbury
87 Grandview Avenue
Waterbury, CT 06708
27.3. Address of Landlord to which notices shall be sent:
French's Mill Associates II
c/o Drubner, Hartley, O'Connor & Mengacci
P.O. Box 346
Waterbury, CT 06720
ARTICLE XXVIII
ESTOPPEL CERTIFICATE, MEMORANDUM OF LEASE
28.1. Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than ten (10) day's prior notice,
to execute and deliver to the other, a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the fixed rent and additional
rent have been paid, and stating whether or not, to the best knowledge of the
signer, the other party is in default in performance of any its obligations
under this Lease, and, if so, specifying each such default of which the signer
may have knowledge, it' being intended that any such statement delivered
pursuant hereto may be relied upon by others with whom the party requesting
such certificate may be dealing.
22
<PAGE>
28.2. At the request of either party, Landlord and Tenant shall
promptly execute, acknowledge and deliver a memorandum with respect to this
Lease sufficient for recording in accordance with the statutes of the State of
Connecticut, which shall contain the commencement date of this Lease. Such
memorandum shall not in any circumstances be deemed to change or otherwise
affect any of the obligations or provisions of this Lease. In no event shall
this Lease be recorded and if Tenant records this Lease in violation of the
terms hereof, Landlord shall have the option to terminate this Lease upon notice
to Tenant.
ARTICLE XXIX
REPRESENTATIONS
29.1. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon any warranties, representations, promises or statements, except
to the extent that the same are expressly set forth in this Lease or in any
other written agreement which may be made between the parties concurrently with
the execution and delivery of this Lease and shall expressly refer to this
Lease. This Lease and said other written agreements made concurrently herewith
are hereinafter referred to as the Lease Documents. It is understood and agreed
that all understandings and agreements heretofore had between the parties are
merged in the Lease Documents, which alone fully and completely express their
agreement and that the same are entered into after full investigation, neither
party relying upon any statement or representation not embodied in the Lease
Documents, made by the other.
29.2. If any of the provisions of this Lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby,
and every provision of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
29.3. This Lease shall be governed in all respects by the laws of the
State of Connecticut.
ARTICLE XXX
LIMITATIONS OF OBLIGATIONS
30.1. The obligation of this Lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to except that the provisions
of this Article shall not be construed as modifying the conditions of
limitation contained in Article XXII. However, the obligations of Landlord
under this Lease shall not be binding upon Landlord herein named with respect
to any period
23
<PAGE>
subsequent to the transfer of its interest in the Building, and/or Land as
owner or lessee thereof and in the event of such transfer said obligations
shall thereafter be binding upon each transferee of the interest of Landlord
herein named as such owner or lessee of the Building, but only with respect to
the period ending with a subsequent transfer within the meaning of this
Article.
30.2. If Landlord shall be an individual, joint venture, tenancy in
common, co-partnership, unincorporated association or other unincorporated
aggregate of individuals and/or entitled or a corporation, Tenant shall look
only to such Landlord's estate and property in the Building, and/or Land (or
the proceeds thereof) for the satisfaction of Tenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of such Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this Lease, the relationship of Landlord and Tenant
hereunder to Tenant's use or occupancy of the Demised premises.
ARTICLE XXXI
CONSTRUCTION OF LEASE
31.1. The various terms which are defined in other Articles of this
Lease or are defined in Exhibits annexed hereto, shall have the meanings
specified in such other Article and such Exhibits for all purposes of this
Lease and all agreements supplemental thereto, unless the context shall
otherwise require.
31.2. The Article headings in this Lease and the Index prefixed to
this Lease are inserted only as a matter of convenience in reference and are
not to be given any effect whatsoever in construing this Lease.
31.3. The rule of ejusdem generis shall not be applicable to limit a
general statement following or referable to an enumeration of specific matters
to matters similar to the matters specifically mentioned.
ARTICLE XXXII
WASTE
32.1. Tenant shall not commit or suffer to be committed any waste upon
the Demised Premises or any nuisance or other act or thing which may disturb
the quiet enjoyment of any other tenant in the Building in which the Demised
Premises may be located.
32.2. Tenant shall, at Tenant's sole cost and expense, comply with all
of the requirements of all county, municipal, state, federal and other
applicable governmental
24
<PAGE>
authorities, now in force, or which may hereafter be in force, pertaining to
the said premises, and shall faithfully observe in the use of the premises all
municipal and county ordinances and state and federal statutes now in force or
which may hereafter be in force.
ARTICLE XXXIII
JANITORIAL SERVICES AND TRASH REMOVAL
33.1. Tenant shall be solely responsible for keeping the Demised
Premises clean by the use of its own janitorial service, and it is understood
and agreed that no part of said janitorial cost shall be borne by the Landlord.
Any and all personnel employed by Tenant to perform janitorial services shall
be bonded, and at Landlord's request, Tenant will furnish Landlord with
satisfactory evidence of its compliance with this provision.
ARTICLE XXXIV
PARKING
34.1. The Tenant shall have the right to use in common with others the
parking areas adjacent to the Demised Premises as shown on Exhibit B.
The Landlord shall have the right to designate employee parking areas
in which the employees of the Tenant shall be required to park, as shown on
Exhibit B.
The Tenant, its employees and agents, shall be prohibited from parking
in the area shown as "Patient/Customer Parking" on Exhibit "B".
ARTICLE XXXV
SIGNAGE
35.1. The Tenant shall have the right to add its name to the signage
on Robbins Street and shall contract Dave Watterworth Signs to do so. The
Tenant shall also have the right to place a sign on the outside of the Building
next to the entrance and in the lobby of the Building. Such signage will
conform to the architectural decor of the Building and will comply to all local
sign ordinances, and is subject to the Landlord's written approval. Tenant will
be fully responsible for all costs and liability pertaining to its erection,
maintenance and removal of such signs.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day and year first above written.
25
<PAGE>
Signed, sealed and delivered
in the presence of: LANDLORD:
FRENCH'S MILL ASSOCIATES II
/s/ By /s/ Dean Yimoyines
- ----------------------------- -----------------------------------
Dean Yimoyines,
/s/ A General Partner
- -----------------------------
TENANT:
OPTICARE EYE HEALTH
CENTER, P.C. - WATERBURY
/s/ By /s/ Dean Yimoyines
- ----------------------------- ----------------------------------
Dean Yimoyines,
/s/ Its President
- -----------------------------
26
<PAGE>
RIDER I
ADJUSTMENT OF FIXED MINIMUM RENT
The fixed minimum annual rental shall be adjusted after the first five
(5) years of the leasehold term and every five (5) years thereafter, including
any option term exercised by Tenant, based upon the fair market value appraisal
of the rent on each adjustment date in accordance with the procedure
hereinafter set forth. In no case shall the increase in rent for each
adjustment period be less than a fifteen (15%) percent increase over the then
existing rent, nor shall the increase be more than thirty (30%) percent of the
then existing rent.
Said adjustment shall be determined as follows:
Prior to the expiration of ninety (90) days from the commencement of
each adjustment period, the Tenant shall deliver to the Landlord a short form
appraisal report prepared by a recognized real estate appraiser who shall have
the designation MAI (Member American Institute of Real Estate Appraisers). Said
report shall contain the fair market value rent for the demised premises,
reduced to a square footage rental which shall be multiplied by 4,170 square
feet to arrive at the adjusted annual rent.
If the Landlord does not wish to accept said adjusted rent as set
forth in said appraisal report, the Landlord shall have thirty (30) days to
obtain his own real estate appraisal prepared by an MAI on the same basis as
set forth hereinabove.
If the two appraisals are within ten (10%) percent, then they shall be
averaged and that figure shall constitute the adjusted rent. If the two
appraisals are not within ten (10%) percent, then the two appraisers shall meet
and if they can not agree upon a fair rental value, they shall appoint a third
appraiser who shall have thirty (30) days to prepare an appraisal report and
the fair market value in said report shall be binding upon the parties thereto
and shall constitute the adjusted rent, unless said third appraisal is less
than the lower appraisal or higher than the higher appraisal. In such event, it
shall be added to the other two and the adjusted rent shall be the average of
all three.
In the event that the two appraisers can not agree upon a third
appraiser, the selection shall be made by the then current President of the
Connecticut Chapter of the Society of Real Estate Appraisers.
In the event that said appraisal procedure shall not be complete, for
any reason, prior to the commencement of any adjustment period, then, in that
event, the pre-existing rent shall be paid until the procedure is complete and
the adjusted portion of the rent shall be paid
<PAGE>
retroactively to the commencement of the adjustment period. Said retroactive
payment shall be made within ten (10) days of the resolution of the rent
adjustment procedure.
Notwithstanding anything to be contrary, in the event that either
party does not provide an appraisal report within the time periods set forth,
then, in that event, the rent for the adjustment period for which the reports
are required shall be as set forth in whichever appraisal report has been
provided. It is understood that time is of the essence in providing said
reports.
It is agreed that each party shall pay for its own appraisal report
and in the event a third appraisal is necessary, the costs thereof shall be
borne equally.
<PAGE>
EXHIBIT A
That certain piece or parcel of land situated on the northerly side of
Robbins Street, the Northerly side of Robinwood Road and the westerly side of
Grandview Avenue in The City of Waterbury, Connecticut, being shown as Parcel B
(Revised) on a map entitled "Map of Land of Norman S. Drubner, Trustee,
Waterbury, Conn., showing Parcels A & B (Revised), The A.J. Patton Co.,
Surveyor, Waterbury, Conn., October 28, 1983 bounded and described as follows:
Beginning at a point marking the intersection of the northerly line of Robbins
Street with the westerly line of Grandview Avenue, said point being the
southeasterly corner of the within described land, thence running westerly in
the northerly line of Robbins Street and in a line curving to the left having a
radius of 1174.07 feet, a distance of 59.46 feet to a point of tangency, thence
running in the northerly line of Robbins Street and tangent to the curve
S69(degree)- 19'-l0"W 238.89 feet to a point of curve, thence running westerly
in the northerly 1ine of Robbins Street and in a line curving to the left
having a radius of 409.44 feet, a distance of 48.07 feet to a point of reverse
curve, thence running westerly in a line curving to the right which connects
the northerly line of Robbins Street with the northerly line of Robinwood Road
having a radius of 89.00 feet a distance of 43.73 feet to a point of tangency,
thence running in the northerly line of Robinwood Road and tangent to the curve
N89(degree)-15'-15'W 86.39 feet to land now or formerly of Francis B. &
Genevieve C. Buckmiller, thence running in line of land now or formerly of
Francis B. & Genevieve C. Buckmiller N20(degree)-20'-24'W 76.96 feet,
N19(degree)-27'-20'W 110.24 feet, S73(degree)-29'-54'W 100.20 feet and
S33(degree)-43'-45'W 61.93 feet to land now or formerly of Raymond Shugrue et
al., thence running in line of land now or formerly of Raymond Shugrue et al.
N19(degree)-49'-15'W 21.76 feet, thence running in line of land now or formerly
of Raymond Shugrue Et al. and land now or formerly of Francis A. & Daniel J.
Learey N89(degree)-15'-15'W 88.50 feet to a 40' passway, thence running in the
easterly line of a 40' Passway N23(degree)-29'-20'W 96.85 feet to land now or
formerly of Maurice Fabiani & Eugene Pesce, thence running in line of land now
or formerly of Maurice Fabiani & Eugene Pesce N56(degree)-43'-40"E 137.38 feet,
N6l(degree)-53'-40"E 66.15 feet and N54(degree)-19'-42"E 116.49 feet to land
now or formerly of Gerard H. Theroux, thence running in line of land now or
formerly of Gerard H. Theroux N30(degree)-31'-34"E 31.67 feet to Parcel A
(Revised) as shown on said map, thence running in line of said Parcel A
(Revised) S20(degree)-40'-29"E 63.50 feet, S14(degree)-32'-20"E 89.45 feet,
S20(degree)-40'-29"E 53.44 feet, N69(degree)-19'-31"E 305.00 feet,
N20(degree)-40'-29'W 10.00 feet and N69(degree)-19'-31"E 73.84 feet to
Grandview Avenue, thence running in the westerly line of Grandview Avenue
S20(degree)-08'-50"E 237.61 feet to Robbins Street and the point of beginning.
<PAGE>
EXHIBIT B
[Map of Premises]
<PAGE>
EXHIBIT C
[Map of Premises]
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, and elevators of
the Building are limited to ingress to and egress from the tenants' premises
for the tenants and their employees, licensees and invitees, and no tenant
shall use, or permit the use of, the entrances, corridors or elevators for any
other purpose. No tenant shall invite to the tenant's premises, or permit the
visit of, persons in such numbers or under such conditions as to interfere with
the use and enjoyment of any of the plazas, entrances, corridors, elevators and
other facilities of the Building by other tenants. Fire exits and stairways are
for emergency use only, and they shall not be used for any other purpose by the
tenants, their employees, licensees or invitees. No tenant shall encumber or
obstruct, or permit the encumbrance or obstruction of any of the sidewalks,
plazas, entrances, corridors, elevators, fire exits or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants; in such manner as it deems best
for the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with
other tenants, caused by a tenant or the employees, licensees or invitees of
the tenant, shall be paid by such tenant.
3. No awning or other projection over or around the windows and doors
shall be installed by any tenant, and only such window blinds as are permitted
by the Landlord shall be used in a tenant's premises. Any floor covering shall
be laid in tenant's premises only in a manner approved by the Landlord.
4. No machinery or mechanical equipment other than ordinary portable
business machines, may be installed or operated in any tenant's premises
without Landlord's prior written consent, and in no case (even where the same
are of a type so accepted or as so consented to by the Landlord) shall any
machines or mechanical equipment be so placed or operated as to disturb other
tenants; but machines and mechanical equipment which may be permitted to be
installed and used in a tenant's premises shall be so equipped, installed and
maintained by such tenant as to prevent any disturbing noise, vibration or
electrical or other interference from being transmitted from such premises to
any other area of the Building.
5. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building services or the proper and
economic heating, cleaning or other servicing of the
<PAGE>
Building or the premises, or the use or enjoyment by any other tenant of any of
the premises, nor shall there be installed by any tenant any ventilating, air
conditioning, electrical or other equipment of any kind, which, in the judgment
of the Landlord, might cause any such impairment or interference. No dangerous,
inflammable, combustible or explosive object or material shall be brought into
the Building by any tenant or with the permission of any tenant.
6. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
7. There shall be no smoking permitted within the Building.
8. The Landlord reserves the right to rescind, alter or waiver any
rule or regulation at any time prescribed for the Building, when in its
judgment it deems it necessary, desirable or proper for its best interest and
for the best interest of the tenant, and no alteration or waiver of any rule or
regulation in favor of one tenant shall operate as an alteration or waiver in
favor of any other tenant. The Landlord shall not be responsible to any tenant
for the nonobservance or violation by any other tenant of any of the rules and
regulations at any time prescribed for the Building.
<PAGE>
LEASE AGREEMENT
DATED: 9/1 , 1995
BETWEEN
O.C. REALTY ASSOCIATES LIMITED PARTNERSHIP
(LANDLORD)
AND
OPTICARE EYE HEALTH CENTER, P.C. - WATERBURY
(TENANT)
PROPERTY:
54 PARK LANE ROAD
NEW MILFORD, CONNECTICUT
<PAGE>
INDEX
PAGE
Demised Premises, Term, Option.................................1
Article I Rent...........................................................2
Article II Taxes, Assessments and Utilities...............................3
Article III Insurance......................................................4
Article IV Condition of Premises..........................................5
Article V Care of Premises...............................................5
Article VI Alterations (With Related Insurance Provisions)................6
Article VII Indemnity to Landlord..........................................7
Article VIII Broker.........................................................8
Article IX Compliance with Governmental Requirements......................8
Article X Assignment, Etc., of Lease.....................................9
Article XI Loss or Destruction by Fire or Otherwise.......................9
Article XII Condemnation..................................................10
Article XIII Termination of Lease for Nonpayment...........................11
Article XIV Termination of Lease Upon Certain Defaults....................12
Article XV Re-Entry......................................................12
Article XVI Reletting and Damages.........................................13
Article XVII Waiver of Right of Redemption.................................14
Article XVIII Recovery of "Additional Rent".................................14
<PAGE>
-2-
Article XIX Mechanic's Liens.............................................15
Article XX Remedial Rights..............................................15
Article XXI Non-Waiver Provisions........................................15
Article XXII Title to Improvements........................................16
Article XXIII Non-Liability of Landlord....................................16
Article XXIV Subordination................................................17
Article XXV Surrender at End of Term.....................................18
Article XXVI Covenants and Conditions.....................................18
Article XXVII Quiet Enjoyment..............................................18
Article XXVIII Notices......................................................19
Article XXIX Interpretation of Term "Landlord"............................20
Article XXX Completeness of Instrument...................................20
Article XXXI Binding Successors in Interest...............................20
SCHEDULE A - Description of Premises
<PAGE>
THIS INDENTURE, made this 1st day of September 1995, by and between
O.C. REALTY ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited partnership
having a principal place of business in the City of Waterbury, County of New
Haven and State of Connecticut (hereinafter called "Landlord"), and OPTICARE EYE
HEALTH CENTER, P.C. - WATERBURY, a Connecticut corporation having a principal
place of business in the said City of Waterbury, County of New Haven and State
of Connecticut (hereinafter called "Tenant").
W I T N E S S E T H :
That the Landlord hereby leases and demises to the Tenant, and the
Tenant hereby hires and takes from the Landlord, upon the terms and conditions
hereinafter set forth, the entire building located at 54 Park Lane Road, New
Milford, Connecticut, which property is more particularly bounded and described
as set forth in Schedule A attached hereto and made a part hereof;
For the term of fifteen (15) years commencing September 1, 1995, and
terminating on August 31, 2010, to be used and occupied for the practice of
medicine and optometry and incidental activities such as the sale of glasses and
corrective lenses offices and no other uses. Furthermore, it shall be Tenant's
sole obligation to obtain all licenses, permits and franchises required by it
for its use of the Demised Premises and no failure to obtain the same, nor any
revocation thereof by any governmental authority of any such licenses, permits
or franchises heretofore or hereafter granted by any such governmental authority
shall in any manner affect this Lease or diminish the amount of rent or any
other payments or charges payable by Tenant hereunder.
Tenant shall have the option to extend this Lease for two (2)
additional terms of ten (10) years each, on the same terms and conditions as
herein provided. Said option shall be exercised by written notice from Tenant to
Landlord at least twelve (12) months prior to the expiration of the then
existing leasehold term. If Tenant holds over without having exercised said
option, this Lease shall be automatically extended for one (1) year, and
thereafter from year to year upon the same terms, subject in each instance to
adjustment of rental as hereinafter provided, unless and until either party
shall have terminated this Lease by giving to the other party written notice of
termination at least thirty (30) days before the expiration of the first or any
subsequent one year period.
And the Landlord and Tenant hereby agree upon the following terms,
covenants, conditions, restrictions and limitations affecting the said demised
premises, to wit:
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ARTICLE I
RENT
Section 1. During the first five (5) years of the leasehold term, the
Tenant shall pay a minimum annual rental to the Landlord of FIFTY THOUSAND FOUR
HUNDRED & 00/100ths DOLLARS ($50,400.00) payable in equal monthly installments
of FOUR THOUSAND TWO HUNDRED & 00/100ths DOLLARS ($4,200.00) each, on the first
day of each month in advance, and shall pay the "additional rent" hereinafter
provided for at the times and in the manner hereinafter provided for. Said rent,
unless and until further written notice, shall be paid to "O.C. Realty
Associates Limited Partnership", 87 Grandview Avenue, Waterbury, CT 06708.
All other charges or obligations of the Tenant hereunder other than the
payment of minimum annual rent shall be considered "additional rent".
Section 2. The minimum annual rental shall be adjusted after the first
five (5) years of the leasehold term and every five (5) years thereafter,
including any option term exercised by Tenant, based upon the fair market value
appraisal of the rent on each adjustment date in accordance with the procedure
hereinafter set forth. In no case shall the increase in rent for each adjustment
period be less than a fifteen percent (15%) increase over the then existing
rent, nor shall the increase be more than thirty percent (30%) over the then
existing rent.
Said adjustment shall be determined as follows:
Prior to the expiration of ninety (90) days from the commencement of
each adjustment period, Tenant shall deliver to Landlord a short form appraisal
report prepared by a recognized real estate appraiser who shall have the
designation MAI (Member American Institute of Real Estate Appraisers). Said
report shall contain the fair market value rent for the Demised Premises.
If Landlord does not wish to accept said adjusted rent as set forth in
said appraisal report, Landlord shall have thirty (30) days to obtain his own
real estate appraisal prepared by an MAI appraiser on the same basis as set
forth hereinabove.
If the two appraisals are within ten percent (10%), then the appraisals
shall be averaged and the average shall constitute the adjusted rent.
If the two appraisals are not within ten percent (10%), then the two
appraisers shall meet and if such appraisers cannot agree upon a fair rental
value, such appraisers shall appoint a third MAI appraiser who shall have thirty
(30) days to prepare an appraisal report and the fair market
<PAGE>
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value in said report shall be binding upon the parties thereto and shall
constitute the adjusted rent, unless said third appraisal is less than the lower
appraisal or higher than the higher appraisal. In such event, it shall be added
to the other two and the adjusted rent shall be the average of all three.
In the event that the two appraisers cannot agree upon a third
appraiser, the selection shall be made by the American Arbitration Association.
In the event that said appraisal procedure shall not be complete, for
any reason, prior to the commencement of any adjustment period, then in that
event, the pre-existing rent shall be paid until the procedure is complete and
the adjusted portion of the rent shall be paid retroactively to the commencement
of the adjustment period. Said retroactive payment shall be made within ten (10)
days of the resolution of the rent adjustment procedure.
Notwithstanding anything to the contrary, in the event that either
party does not provide an appraisal report within the time periods set forth,
then, in that event, the rent for the adjustment period for which the reports
are required shall be as set forth in whichever appraisal report has been
provided. It is understood that time is of the essence in providing said
reports.
It is agreed that each party shall pay for its own appraisal report and
in the event a third appraisal is necessary, the costs thereof shall be borne
equally.
ARTICLE II
TAXES, ASSESSMENTS AND UTILITIES
Section 1. The Tenant shall bear, pay and discharge punctually as and
when the same shall become due and payable throughout the term of this lease all
such taxes, duties, assessments, governmental impositions and also all such
water rates, rents or charges (whether imposed annually or measured according to
quantity of water consumed, including all charges for installing and repairing
water meters now or hereafter required to be installed in any part of the
demised premises), as shall or may during the terms of this Lease be laid,
levied, assessed or imposed upon, or become due or payable, or liens upon or
chargeable, against the demised premises or any part hereof or the sidewalks or
streets adjoining or in front thereof, or against the owner or occupant of the
demised premises or both, save and except that as to the fiscal tax years of
which part of the first year and part of the last year of the term hereby
granted are parts, the Tenant shall bear and pay only that proportionate part of
the taxes for each of said fiscal tax years which the period of the term
hereunder occurred during each of the said fiscal tax years bears to an entire
year.
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Section 2. The Tenant shall have the right to contest, or review, by
legal proceedings, or in such other manner as it may deem suitable (which, if
instituted, shall be conducted promptly, in its own name or the name of the
Landlord, or both, but at the Tenant's own expense and free of all expense to
the Landlord), any tax, duty, assessment, governmental imposition, water rates,
rent, or charges, above referred to, upon condition that within the time limited
by this Lease for the payment of such tax, assessment, water rents, or other
charges, the same are paid.
Section 3. The Tenant shall be solely responsible for the cost of all
utilities, including heat, air conditioning, light, power, gas, water and the
heating of hot water.
ARTICLE III
INSURANCE
Section 1. The Tenant, at its own expense and cost, will keep all
buildings on the demised premises (exclusive of excavations and foundations) and
all fixtures (except such trade fixtures as the Tenant, pursuant to the terms of
this Lease, has the right to remove) insured against loss or damage from the
perils insured against under a standard policy issued in the State of
Connecticut for fire and extended coverage insurance, for the full insurable
value thereof, except for a deductible amount selected by Tenant for which
amount Tenant shall be responsible directly for payment for repairs not subject
to insurance because of the aforesaid deductible, in companies duly authorized
by the State of Connecticut to do business in said state, and which the Landlord
agrees to approve unless it is reasonable to withhold such approval. All such
insurance shall be in the name of the Landlord and the Tenant, and, if so
required by the Landlord, also in the name of the holder or holders of any
mortgage or mortgages on the demised premises as their respective interests may
appear, and the policies therefor shall be subject to the approval of the
Landlord as to terms hereof (provided, however, that the Landlord shall not be
entitled to object to the inclusion or exclusion of any deductible provision or
other terms or provisions if the inclusion or exclusion of such terms or
provisions be required by the laws of the State of Connecticut). A Certificate
of Insurance shall be delivered to the Landlord, and the loss, if any, shall be
made payable to the Landlord, Tenant, or mortgagee, as their interests may
appear. The Tenant shall pay the premiums upon all such policies and all other
charges incidental to effecting such insurance. Ten (10) days' written notice of
cancellation or reduction of insurance shall be given to the Landlord. On
default in maintaining the aforesaid insurance, the Landlord may procure its own
policies of insurance and pay the premiums thereon, and the amount of such
payment and expense shall be repaid by the Tenant on demand or may be added to
and become additional rent, with the rights and remedies for the collection and
enforcement thereof in this Lease provided.
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Landlord and Tenant waive rights to recover (except as otherwise
provided in this Section regarding the deductible) from each other for any
damage or loss from the perils insured against under a standard fire and
extended coverage policy issued in the State of Connecticut, even though such
damage or loss results from the negligence of either Landlord or Tenant.
ARTICLE IV
CONDITION OF PREMISES
Section 1. The Tenant shall take the premises in "as is" condition.
ARTICLE V
CARE OF PREMISES
Section 1. Throughout the term of this lease, the Tenant shall, at its
own cost and expense, take good care of and keep in good order and repair,
inside and out, all buildings and structures which are now or shall hereafter be
constructed on or appurtenant to the demised premises and the roofs, walls and
foundations thereof, and all fixtures and appurtenances therein and thereto and
all equipment thereof, including, but not being limited to, all HVAC, engines,
boilers, elevators, machinery, pipes, plumbing, wiring, gas, steam and
electrical fittings, sidewalks, asphalt, parking, water, sewer and gas
connections, heating equipment, and all other fixtures, machinery and equipment
now or hereafter belonging to or connected with the demised premises or used in
their operation, and all alterations, additions and improvements thereto, make
all repairs, replacements and renewals, in and about the same, inside and
outside, ordinary and extraordinary, structural or otherwise, necessary to
preserve the demised premises in good order and condition, including such as may
be necessary because of conditions existing at the time of the commencement of
the term of this Lease, which repairs, replacements and renewals shall be in
quality and class at least equal to that of the original work; promptly pay the
expenses of such repairs, replacements and renewals; suffer no waste or injury
and keep the sidewalk and curb in good repair and free from snow, ice, dirt and
rubbish; permit at reasonable intervals during the usual business hours the
Landlord and representatives of the Landlord to enter the demised premises for
the purpose of inspection and to exhibit them for the purpose of sale, rental or
mortgaging; suffer the Landlord to make (in the Landlord's discretion, although
the Landlord shall be under no obligation to do so) repairs or improvements to
any and all parts of any building on the demised premises and to comply with all
orders of governmental authority applicable to said buildings or to any occupant
thereof if the Tenant be in default, after written notice as hereinafter
mentioned, in respect to any of said matters; permit during the year next prior
to the expiration of the term the usual notices of "For Sale" and "To Let" to be
placed and to remain unmolested in a conspicuous place or places upon the
exterior of the demised
<PAGE>
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premises, but not on the windows and doors, and repair at or before the end of
the term all injury done by the installation or removal of trade fixtures,
furniture, machinery and other property.
Without intending to limit the generality of the foregoing, it being
agreed that the obligations and undertakings of the Tenant, as provided in this
Section 1 of ARTICLE V, shall be and be deemed to be absolute, it is understood
that if the Tenant, after the use of due diligence and the expenditure of all
reasonable efforts, be delayed in performing any of the obligations set forth in
this Section 1 of ARTICLE V by reason of governmental preemption, prohibition,
limitation or restriction in connection with any national emergency declared by
the President of the United States, or in connection with any rule, order or
regulation published by any department or subdivision thereof of any
governmental agency, then (but only while such governmental preemption,
prohibition, limitation or restriction continues in force) the time for the
Tenant to perform its obligations under this Section 1 of ARTICLE V shall be
extended until a reasonable time after any such reason shall have ceased to
exist.
Section 2. The Tenant shall not obstruct the street or sidewalk
adjacent to the demised premises, nor do or suffer anything to be done upon the
demised premises which will be liable to cause structural injury to any building
then upon the premises; nor permit the accumulation of waste or refuse matter.
ARTICLE VI
ALTERATIONS (WITH RELATED INSURANCE PROVISIONS)
Section 1. The Tenant shall not install or incorporate in any building
existing at any time upon the demised premises any materials, articles or
fixtures purchased under conditional sale or which may be subject to chattel
mortgage. The foregoing shall not apply to such chattels or articles of
personalty which are neither part of the realty nor attached to the freehold.
Section 2. In the event of the Tenant making any construction or
alteration or addition or improvement costing Two Thousand Five Hundred and
00/100ths ($2,500.00) Dollars, or more, the Tenant shall cause plans with
details and specifications covering the proposed construction, alteration,
addition or improvement to be prepared and submitted to the Landlord for its
approval, and the Landlord agrees to approve said plans and specifications
unless it is reasonable to withhold such approval; and the Tenant shall also
cause said plans with details and specifications to be approved by the
governmental authorities having jurisdiction thereof, all of such approvals to
be obtained before any work is commenced and such submission to, and approval
by, the Landlord and public authorities shall likewise be required as to any
amendments to such plans with details and specifications. The Tenant agrees that
it will do and perform all of this work, or cause the same to be done and
performed, in a good and
<PAGE>
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workmanlike manner, and will prosecute the said work to completion with due
diligence. Upon the completion of any construction, alterations, additions or
improvements, the Tenant shall furnish to the Landlord certificates of
compliance with all requirements of all governmental authorities having
jurisdiction and of the Board of Fire Underwriters having jurisdiction, if such
certificates are commonly issued.
Section 3. In the event of the Tenant making any construction or
alteration or addition or improvement on the premises, the Tenant shall deliver
to the Landlord a Certificate of Insurance of casualty or liability insurance,
but in which, however, the Landlord may be named as an additional party insured
indemnifying and saving harmless the Landlord from all loss or damage by reason
of any injury or alleged injury to any person or persons or property caused by
or on account of or arising out of ownership, maintenance, or use of the demised
premises or arising out of the risks of such building operations and from any
and all liability in connection therewith, which said policy shall be in the
minimum sum of Five Million Dollars ($5,000,000.00) combined single limit and
property damage in respect to any one occurrence. Such policy of insurance shall
be in a company duly authorized by the State of Connecticut to do business in
the said State, which the Landlord agrees to approve unless it is reasonable to
withhold approval.
ARTICLE VII
INDEMNITY TO LANDLORD
Section 1. The Tenant shall indemnify, defend and save harmless the
Landlord against any and all claims arising from the conduct or management of or
from any work or thing whatsoever done in or about the demised premises or the
equipment therein during said term, or arising out of the occupation of the
demised premises or the streets, vaults, sidewalks and walls adjacent thereto,
or the use or maintenance of boilers and elevators therein, or arising from any
act or negligence of the Tenant or any of its agents, servants or employees, or
arising from any accident, injury or damage whatsoever, however caused, to any
person or persons, or to the property of any person, persons, corporation or
corporations, occurring during said term on, in or about the demised premises,
or the sidewalks, streets, driveways and vaults, if any, adjacent thereto, and
from and against all costs, attorneys' fees, expenses and liabilities incurred
in or about any such claim or any action or proceeding brought thereon, except
for the negligence of the Landlord, his agents, servants or employees, and
Landlord's Workmen's Compensation claims by Landlord's employees. In case any
action or proceeding be brought against the Landlord by reason of any such
claim, except as excluded above, the Tenant, on notice from the Landlord, shall
resist or defend such action or proceeding. It is further agreed and understood
that the Tenant shall at its own cost and expense, for the further protection of
the Landlord, cause to be delivered to the Landlord a Certificate of insurance
(in which, however, the Tenant
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may be named as an additional party insured, provided such policy contains a
provision or an endorsement to the effect that the Landlord's rights and
interests in or under such policy shall in nowise be affected by any acts of
omission or commission by the Tenant) issued by an insurance company, if such
policy is obtainable, satisfactory to the Landlord, and which the Landlord
agrees to approve unless it is reasonable to withhold approval, indemnifying the
Landlord against any and all of the claims and liabilities in this Article
provided for, except as excluded above, in the minimum sum of Five Million
Dollars ($5,000,000.00) combined single limit and property damage in respect to
any one occurrence.
When such policy of liability insurance shall be about to expire and
likewise when each renewal thereof shall be about to expire, the Tenant shall,
at least ten (10) days before the expiration date, cause to be delivered to the
Landlord a new Certificate. In the event of the failure of the Tenant to provide
such liability insurance or any renewal thereof, or to pay the premium thereon
so as to keep the same valid, the Landlord may either provide the insurance
itself, or may itself pay the premium on the insurance effected by the Tenant
and, in either case, all sums paid or the obligation to pay which has been
incurred by the Landlord may be recovered by the Landlord from the Tenant as
"additional rent".
ARTICLE VIII
BROKER
Section 1. Each party acknowledges that it has dealt with no broker or
realtor in connection with this transaction. In the event that said
representation is not correct and a claim is made for a commission, then the
party who has in fact dealt with a real estate broker or realtor in connection
with this transaction shall indemnify the other for any claim for a commission.
ARTICLE IX
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS
Section 1. The Tenant shall at its own cost and expense Promptly
execute and comply with all laws, rules, orders, ordinances, regulations and
notices of violation at any time issued or in force applicable to the demised
premises or to the occupation thereof, made by or emanating from the village,
town, city, county, state and federal governments and each and every department,
bureau and official thereof having jurisdiction, it being the intention of the
parties hereto that the Tenant shall hereby assume the entire responsibility and
also fully relieve the Landlord from the responsibility and expense of executing
and complying with the laws, rules, orders, ordinances, regulations and notices
of violation.
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ARTICLE X
ASSIGNMENT, ETC., OF LEASE
Section 1. The Tenant shall have no right to assign this Lease, or
sublet the premises, unless it shall first, in writing, request the Landlord for
permission to do so, which permission shall not be unreasonably withheld. If
such request is reasonable, the Landlord, at his option, shall either:
(a) give the Tenant such permission, and thereafter upon such
assignment or subletting, the Tenant shall continue to be as fully responsible
for all the obligations under this Lease, as though it continued to occupy the
Demised Premises.
(b) terminate this Lease, in which case it shall notify the
Tenant of such election, and this Lease shall, by virtue of such notice,
terminate on the last day of the month in which such notice is given; provided
that the Landlord shall only be entitled to exercise the option described in
this Section (b) in the case of an assignment or subletting of the entire
demised premises for the remaining term of this Lease and all renewals.
Section 2. In the event Landlord consents to an assignment or sublet by
the Tenant as set forth above:
(a) Tenant covenants and agrees that immediately upon entering
into said assignment or sublease, Tenant will deliver to the Landlord a true and
correct copy same;
(b) In the event that the Tenant shall default in the
performance of any of the terms, provisions, covenants, agreements or conditions
of this Lease on the part of the Tenant to be performed, and should such default
continue for the respective periods in this Lease set forth, the Landlord shall
have the right, at its option, forthwith and without notice, to collect the
rentals and other charges from the subtenant or assignee, and apply them to
curing the default or defaults of the Tenant hereunder until such default or
defaults have been cured.
ARTICLE XI
LOSS OR DESTRUCTION BY FIRE OR OTHERWISE
Section 1. Partial Destruction. In the event the building in which the
demised premises are located shall, during the term of this Lease, be partially
(but not substantially) destroyed or damaged by fire or other casualty, Tenant
shall give immediate notice thereof, in writing, to Landlord, and the Landlord
shall promptly repair and restore the premises within a reasonable time at his
own costs and expense. If the demised premises, or any part thereof, as a result
of
<PAGE>
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said partial destruction of the demised premises or the building in which the
demised premises are located, shall be rendered untenantable for the purposes of
the use by Tenant contemplated in this Lease by fire or other casualty, rent
shall be accordingly abated pro rata from the date of such fire. In the event
that the Landlord fails to proceed with reconstruction of the premises, so that
the same remains unusable by the Tenant for his business purposes, within one
hundred twenty (120) days after such partial destruction, this Lease may be
terminated at Tenant's election.
Section 2. Substantial destruction or total destruction. If the
premises shall, during the term of this Lease, be substantially or totally
destroyed or damaged by fire or other casualty, (which shall be defined as more
than sixty (60%) percent destroyed), whether or not covered by insurance, the
Landlord may elect to repair or rebuild, or not to do so, in which latter event
this Lease shall terminate.
(a) In the event the Landlord elects to rebuild, he shall
notify the Tenant of the same within thirty (30) days after such destruction or
damage, and he shall complete said rebuilding within six (6) months thereafter;
and, during the period until the rebuilding is completed, the rent shall be
adjusted so as to relieve the Tenant from any payment of rent for any portion of
the demised premises of which the Tenant shall have lost the use of as a result
of such damage, during the period of such loss of use.
(b) In the event the Landlord elects not to repair or rebuild,
or fails to notify the Tenant of his election to do so within thirty (30) days
of such damage, this Lease may be terminated by either the Landlord or the
Tenant, upon giving thirty (30) days written notice thereof to the other, and in
the event of such termination, no rent shall be payable hereunder beyond the
date of such extensive damage.
ARTICLE XII
CONDEMNATION
Section 1. If during the term of this Lease there is a total
condemnation (as hereinafter defined) of the demised premises, the Tenant shall
not be entitled to any apportionment of the award for the taking of the fee, but
shall be entitled to damages for moving costs, and personal property loss.
In the event of said total condemnation of the demised premises, or in
the event of a negotiated sale to the condemning authority in lieu of
condemnation, then the term of this lease shall cease and terminate as of the
date of said taking or sale.
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In the event of a partial condemnation (as hereinafter defined) of the
demised premises, the Tenant shall not be entitled to any apportionment of the
award for the taking of the fee, but shall be entitled to damages for moving
costs and personal property loss.
After such partial taking, the yearly minimum rental shall be reduced
by a percentage equal to the percentage of the total building area so taken and
not replaced but all of the terms and covenants of this lease shall remain in
full force and effect.
As used herein, a partial condemnation shall mean a taking of the
demised premises by governmental authority or public or private corporation
authorized to take interests in land by condemnation, which taking diminishes
the square footage of the building of the demised premises by less than thirty
percent (30%).
As used herein, a total condemnation shall mean a taking as described
above, which taking diminishes the square footage of the building of the demised
premises by thirty percent (30%) or more.
ARTICLE XIII
TERMINATION OF LEASE FOR NONPAYMENT
Section 1. If the Tenant shall make default in the payment of any
monthly installment of the annual rent reserved hereunder on any day fixed for
the payment of any such installment or shall make default in the payment of any
item of additional rent herein provided for or in making any other payment
herein provided for, the Landlord may forthwith give to the Tenant ten (10)
days' written notice of intention to end the term of this Lease, specifying the
sums unpaid, and thereupon at the expiration of five (5) days from the date of
receipt by Tenant of said written notice, if said monies shall not meanwhile
have been paid, the term under this Lease the leasehold estate hereby granted
shall expire as fully and completely as if that day were the date herein
definitely fixed for the expiration of the term, and the Tenant shall then and
thereupon quit and surrender the demised premises to the Landlord. Nothing
herein contained, however, shall be construed to prevent the Landlord,
immediately upon a default, from forthwith instituting summary proceedings in
any court having jurisdiction to recover possession of the demised premises upon
the ground of nonpayment of rent, but in any such summary proceedings instituted
for nonpayment of rent, Tenant, at any time prior to the issuance of a warrant
of dispossess, shall be entitled to have such proceedings discontinued upon
payment to the Landlord (or the petitioner in such proceedings) of all rent in
arrears, with interest thereon, together with the costs and disbursements of
such proceedings, provided that at the time of such payment this lease shall not
have terminated or expired in accordance with any of the provisions of said
lease.
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ARTICLE XIV
TERMINATION OF LEASE UPON CERTAIN DEFAULTS
Section 1. If the Tenant should be adjudicated a bankrupt, or make a
general assignment for the benefit of creditors, or file a voluntary petition in
bankruptcy, or for an arrangement or for reorganization, or take the benefit of
any insolvency act or statute, or if a receiver or trustee be appointed for its
property in or under any insolvency, or in connection with the liquidation
(voluntary or involuntary) of the Tenant, and such trustee or receiver be not
dismissed within sixty (60) days after the appointment of such trustee or
receiver, or if an involuntary petition in bankruptcy or for an arrangement or
for reorganization be filed against the Tenant (unless the petition be
thereafter dismissed), or if a warrant of attachment be issued or a judgment
recovered against the Tenant or such owner of the leasehold estate and the same
shall not be discharged by payment or by filing of bond or undertaking within
sixty (60) days after such attachment or judgment shall have been rendered, or
if a receiver be appointed for the property of the Tenant or such owner of the
leasehold estate and such receivership be not vacated within sixty (60) days, or
if this lease of the leasehold estate created hereunder be transferred or pass
to or revolve upon any other person or corporation, except as herein permitted,
and the rent is not paid, or if the Tenant shall make a default in fulfilling
any of the terms, conditions or covenants of this Lease (other than the
covenants for payment of rent, additional rent or other monies as set forth in
the preceding Article), or if the demised premises be abandoned or deserted, the
Landlord may give to the Tenant fifteen (15) days' written notice of intention
to end the term of this Lease, specifying the cause therefor, and thereupon at
the expiration of ten (10) days from the date of the receipt by the Tenant of
said written notice, if said default shall continue or if said cause or
condition which was the basis of said notice shall continue to exist, the term
under this Lease and the leasehold estate hereby granted shall expire as fully
and completely as if that day were the date herein definitely fixed for the
expiration of the term, and the Tenant shall then and thereupon quit and
surrender the demised premises to the Landlord.
ARTICLE XV
RE-ENTRY
Section 1. If the Tenant shall make default in the payment of the rent
reserved hereunder or any item of additional rent herein mentioned, or any part
of either, or in making any other payment herein provided for, as a result of
which default the leasehold estate hereby granted shall expire as provided in
ARTICLE XIII of this lease, or if this lease shall expire as provided in either
of the two preceding Articles hereof, the Landlord may immediately or at any
time thereafter re-enter the demised premises and remove all or any persons and
all or any property therefrom, either by summary proceedings or by any suitable
action or proceeding at law or in
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equity or by force or otherwise, without being liable to indictment, prosecution
or damages therefor, and repossess and enjoy said premises together with all
additions, alterations and improvements. The words "re-enter" and "re-entry" as
used in this lease are not restricted to their technical legal meaning.
ARTICLE XVI
RELETTING AND DAMAGES
Section 1. In the event of the breach of any term, covenant, agreement,
condition or undertaking on the part of the Tenant to be respected, complied
with or performed hereunder, or in the event that the demised premises or any
part hereof becomes vacant or are or is abandoned, or in the event that the
Tenant is evicted by summary proceedings or otherwise, whether the Landlord
re-enters in or for such event or not, or in the event that the relation of
Landlord and Tenant shall cease or terminate by reason of the re-entry of the
Landlord under the terms and conditions contained in this lease or by the
eviction or ejectment of the Tenant by summary proceedings or otherwise, or in
the event that the Landlord terminates this lease by reason of any nonpayment of
rent or other breach of the covenants of said Lease by the Tenant at any time
(whether pursuant to the law or to the provisions of this lease), the Landlord
shall, in addition to any and all other rights and remedies which it may have,
have the rights and remedies following, and the Tenant shall, in addition to all
other obligations and liability, be subject to the obligations, liability and
duties following:
(a) The Tenant shall, nevertheless, remain and be liable to
the Landlord for and on account of all arrearages of rent, including both the
fixed rent and the additional rent, and for the breach of all other agreements
and conditions imposed by force of this lease, and shall also be liable to pay,
and shall pay, to the Landlord, as damages for the breach of this lease on the
days originally fixed in this lease for payment thereof during the remainder of
the term of this lease, sums of money equivalent to what would be the fixed rent
and additional rent and other monies payable by the Tenant if this lease were
still continuing in force, less, however, the net avails (ascertained as
provided in succeeding subparagraph (b) of this ARTICLE XVI), if any, or any
reletting of the premises by the Landlord; and the Landlord shall be entitled to
any and all appropriate actions at law or in equity for the enforcement of
Tenant's liability and obligations hereunder, and shall be entitled to recover
the said damages either in one action or in successive actions from time to
time, each brought to recover one or more installments of damage theretofore
accrued, as the Landlord may desire.
(b) The Landlord shall be entitled, at its option, to repair
the demised premises, as would be reasonable and the product of an arm's length
agreement, the Tenant remaining liable and responsible for the cost and payment
of same; and the Landlord may, at its
<PAGE>
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option, with or without causing any such repairs, relet the said demised
premises or portions thereof, from time to time, as opportunity may offer and as
Landlord may deem expedient, to any person or persons, firm or corporation and
for any purpose deemed by it suitable, for such rental as it deems fit, and for
any period equal or greater than or less than the remainder of the demised term,
and to receive and apply the rents so received to the cost of re-entry, repairs,
redecorating, payment of broker's commission in connection with the obtaining of
such new tenant, management, costs and counsel fees incurred by the Landlord in
connection with any of the foregoing; and then to apply the balance ("net
avails"), in the Landlord's discretion, on account of the obligations of the
Tenant for rent theretofore accrued and thereafter to accrue hereunder or for
damages occasioned by breach of any covenants and conditions herein provided to
be performed or observed on the part of the Tenant; provided, however, that in
no case shall the Tenant be entitled to any surplus remaining as the result of
any such reletting, and provided further that the Landlord shall not be required
to relet the same, and that the Tenant's obligations hereunder (including its
obligation to pay the rent herein reserved) shall not be affected or diminished
by reason of any failure on the part of the Landlord to relet said premises.
ARTICLE XVII
WAIVER OF RIGHT OF REDEMPTION
Section 1. The Tenant hereby expressly waives any and all right of
redemption which it may have under statute now in effect or hereafter enacted,
or any rule of law now in effect or hereafter promulgated or otherwise, in case
it shall be dispossessed or removed from the premises by judgment or warranty of
any court or judge, or in the event that the term of this lease shall be
shortened, abbreviated or limited by nonpayment of rent, additional rent or any
other monies, or by notice given by the Landlord as herein authorized.
ARTICLE XVIII
RECOVERY OF "ADDITIONAL RENT"
Section 1. If the Tenant shall make default in performance of any
covenant herein contained, whether calling for the payment of monies or the
doing of an act, the Landlord may immediately or at any time thereafter, after
fifteen (15) days written notice, pay such monies or do such act for account, of
the Tenant. Any amount paid or expense incurred by the Landlord by reason of the
failure of the Tenant to comply with any provision of this lease, shall be
deemed to be "additional rent" for the demised premises and shall be due and
payable by the Tenant to the Landlord on the first day of the next calendar
month, or at the option of the Landlord on the first day of any succeeding
month, or at the further option of the Landlord the same may be recovered by the
Landlord after the expiration of the term.
<PAGE>
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ARTICLE XIX
MECHANIC'S LIENS
Section 1. The Tenant shall have no power to do any act, or to make any
contract, that may create, or be the foundation for, any lien upon the present,
or other, estate, or reversion, of the Landlord in the demised premises, or upon
any of the buildings, or improvements thereon.
Section 2. If a notice of mechanic's lien be filed against the demised
premises or the Landlord's interest therein, for, or purporting to be for, labor
or material alleged to have been furnished or to be furnished at the demised
premises to or for the Tenant or to or for someone claiming under the Tenant,
and if the Tenant shall fail to cause such lien to be discharged within
twenty-five (25) days after written notice, the Landlord may discharge or cause
the discharge of such lien by deposit or by bonding proceedings and the Landlord
may require the lienor to prosecute an appropriate claim to enforce such
lienor's claim, and if such lienor be successful the Landlord may, after written
notice to the Tenant, pay the amount of any judgment recovered on such claim.
Any amount paid or expense incurred by the Landlord as in this clause provided
(including surety company premiums on bond to discharge the lien) and any
expense incurred or sum of money paid by the Landlord in connection with the
defense of such action shall be paid by the Tenant to the Landlord and shall be
recoverable by the Landlord as "additional rent".
ARTICLE XX
REMEDIAL RIGHTS
Section 1. All remedies, rights and elections of the Landlord, which
are given by this lease, are in addition to and not in substitution for, nor
exclusive of, the rights of action and causes of action or other remedies that
may be available to it at law or in equity or under any present or future
statutes. In the event of a breach or threatened breach by the Tenant of any of
the covenants hereof, the Landlord shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity, as if specific remedies,
indemnity or reimbursement were not herein provided for.
ARTICLE XXI
NON-WAIVER PROVISIONS
Section 1. The failure of the Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease, or
to exercise any option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant
<PAGE>
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or option, but the same shall continue and remain in full force and effect. The
receipt by the Landlord of rent or additional rent or any other sum of money,
with knowledge of the breach of any condition or covenant hereof, shall not be
deemed a waiver of such breach, and no waiver by the Landlord of any provision
hereof shall be deemed to have been made unless in writing and subscribed by the
Landlord.
Section 2. If this Lease be assigned, or if the demised premises or any
part hereof be underlet or occupied by anybody other than the Tenant, and if the
Tenant be in default in respect to any payment to be made by the Tenant
hereunder, the Landlord may collect rent or other monies from the assignee,
undertenant or occupant, and apply the net amount collected to any amounts due
hereunder, and no such collection shall be deemed to be a waiver of the covenant
herein against assignment nor to be an acceptance of the assignee, under tenant
or occupant as tenant, nor to be a release of the Tenant from the performance by
the Tenant of the covenants herein contained on the part of the Tenant.
ARTICLE XXII
TITLE TO IMPROVEMENTS
Section 1. All improvements, additions and alterations made by the
Tenant to or upon the demised premises, (except trade fixtures), shall when
made, at once be deemed to be attached to the freehold and become the property
of the Landlord and at the end or other expiration of the term shall be
surrendered to the Landlord.
Section 2. If after default in payment of rent or violation of any
other provision of this lease, or upon the expiration of this lease for any
cause, the Tenant moves out or is dispossessed than merchandise, prior to such
said removal, expiration of lease, and fails to remove any trade fixtures or
other property, other or prior to the issuance of the final order or execution
of the warrant, then and in that event, the said fixtures and property shall be
deemed abandoned by the said Tenant and shall become the property of the
Landlord.
ARTICLE XXIII
NON-LIABILITY OF LANDLORD
Section 1. The Landlord does not warrant that any governmental license
or licenses or permit or permits which may be required for any business to be
carried on by the Tenant in the demised premises will be granted, or if granted
will be continued in effect or renewed, and any failure to obtain such license
or any revocation thereof or failure to renew the same shall not release the
Tenant from the terms of this lease.
<PAGE>
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Section 2. The Tenant has inspected the demised premises and the
surroundings and accepts the demised premises in their present condition without
any warranty or representation of any nature whatsoever on the part of the
Landlord; except that the Landlord warrants that the building has been erected
in accordance with the State and local building code and that the underground
mechanicals are in working condition.
Section 3. The Landlord shall not be liable for any action of the
elements, or any failure of water supply, gas, or electric current, or for
injury or damage to person or property caused by or resulting from steam, gas,
electricity, water, rain or snow, which may leak or flow from any part of the
demised premises, or from any pipes, appliances, or plumbing works of the same,
or from the street or sub-surface, or from any other place, or for interference
with light or other incorporeal hereditaments or easements, however caused,
except as provided in Section 2 and except for the negligence of Landlord, its
agents, servants, or employees; neither shall the Landlord be liable for any
defect in the building on the demised premises, whether latent or otherwise.
ARTICLE XXIV
SUBORDINATION
Section 1. This lease shall be subject and subordinate at all times to
any and all mortgage or mortgages hereafter placed on or against the demised
premises and to all renewals, modifications, consolidations, replacements and
extensions thereof, which said mortgage or mortgages may be in any principal
amount or amounts.
This lease shall also be subject and subordinate at all times to any
and all other mortgages hereafter placed on or against the demised premises, and
to all renewals, modifications, consolidations, replacements and extensions
thereof.
In confirmation of such subordination, the Tenant shall execute and
deliver promptly any certificate or instruments subordinating this lease and the
leasehold estate hereby granted to any such mortgage or mortgages, and to the
lien thereof, that the Landlord may request, and the Tenant hereby appoints the
Landlord the attorney-in-fact of the Tenant to execute and deliver any such
instrument or instruments for the Tenant, which said authority is hereby
declared to be coupled with an interest on the part of the Landlord and to be
irrevocable; provided, always, however, that this paragraph is and shall be
self-executing, and that this lease is and shall be subject and subordinate to
all such mortgage or mortgages, without the execution by the Tenant of any
instrument or instruments whatsoever.
<PAGE>
-18-
Notwithstanding said subordination, this lease shall continue in full
force and effect, and the Tenant's rights hereunder shall not be disturbed
except as in this lease provided.
Section 2. If there shall be a default in the payment of either the
principal, or interest, of any mortgage, or mortgages, hereafter placed against
the demised premises and senior in lien and effect to this lease, the Tenant
shall have the right and privilege to pay such mortgage principal or interest so
in default, and, upon making such payment, the Tenant shall, in addition to any
other rights it may have at law or in equity, be entitled to deduct the amount
so paid from the installment, or installments, of rent then due, or thereafter
falling due, until the amount of such payment shall have been repaid therefrom
to the Tenant.
ARTICLE XXV
SURRENDER AT END OF TERM
Section 1. Upon the expiration of the term hereby demised, the Tenant
shall quit and surrender to the Landlord the demised premises with all
alterations, additions and improvements in good order and condition, reasonable
wear and damage by fire or casualty no matter how occurring and damage by the
elements excepted; except that the Tenant shall have the right to remove his
trade fixtures as described in Article XXII, Section 1.
ARTICLE XXVI
COVENANTS AND CONDITIONS
Section 1. Each and every covenant on the part of the Tenant shall be
deemed and construed to be and the same hereby is made a condition of the
Tenant's leasehold estate, and each and every condition herein contained shall
be deemed and construed to be and the same hereby is made a covenant which the
Tenant promises and agrees to perform.
ARTICLE XXVII
QUIET ENJOYMENT
Section 1. The Landlord covenants and agrees with the Tenant that if
and so long as the Tenant duly pays the rent reserved herein and duly performs
all of the terms, provisions, covenants, agreements and conditions hereof on the
part of the Tenant to be performed, the Tenant shall peaceably enjoy the demised
premises, subject, however, to the terms, provisions, covenants, agreements and
conditions of this lease and to all mortgages and encumbrances on or against the
demised premises prior in lien to this lease; but the Tenant covenants and
agrees that
<PAGE>
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the Landlord shall not be liable for any breach of this covenant that may occur
after the Landlord shall have ceased to be the owner of the demised premises.
Said covenants of quiet enjoyment shall then become the responsibility of the
successor in interest to the Landlord herein.
ARTICLE XXVIII
NOTICES
Section 1. Any notice by the Landlord to the Tenant or by the Tenant to
the Landlord shall be given and shall be deemed to have been duly given if
either delivered personally or mailed by certified mail in any general or branch
post office, enclosed in a certified postpaid envelope addressed to the
respective addresses below stated, or (after an address for notices has been
duly changed as below provided) if so enclosed and mailed and addressed to the
changed address below provided for:
To the Landlord at: Attn. Dean Yimoyines
O.C. Realty Associates Limited Partnership
87 Grandview Avenue
Waterbury, CT 06708
To the Tenant at: Attn.: Dean Yimoyines
Opticare Eye Health Center, P.C. - Waterbury
87 Grandview Avenue
Waterbury, CT 06708
Either party may at any time change the address for notices to such
party, by delivering or mailing as aforesaid a notice, at least five (5) days
previously, stating the change and setting forth the changed address.
Section 2. As soon as the actual commencement date of this lease has
been determined by the parties hereto, they shall execute a Notice of Lease
document which shall be recorded on the New Milford Land Records, which Notice
shall indicate the initial term and options of this Lease.
<PAGE>
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ARTICLE XXIX
INTERPRETATION OF TERM "LANDLORD"
Section 1. The Tenant covenants and agrees that the term "Landlord", as
used in this lease, means only the owner for the time being of the demised
premises so that, in the event of any sale or other transfer of the demised
premises, the owner of said demised premises prior to such sale or other
transfer, shall be and hereby is entirely freed, relieved, released and
discharged of all covenants, agreements, liability and obligations of the
Landlord thereunder, and it shall be deemed and construed without further
agreement between the parties or between the parties and the purchaser or other
transferee of the demised premises that such purchaser or other transferee has
assumed and agreed to carry out any and all covenants, agreements and
obligations of the Landlord hereunder.
ARTICLE XXX
COMPLETENESS OF INSTRUMENT
Section 1. This lease embodies the entire agreement of the parties and
there are no other or collateral agreements or engagements in existence between
them or binding on either of them. The parties hereto agree that this lease
shall not be modified in any manner, except by a written instrument signed by
both parties hereto. The titles or headings of the several articles are inserted
for convenience of references, and this lease and the several parts thereof are
to be construed without reference to said titles or headings.
ARTICLE XXXI
BINDING SUCCESSORS IN INTEREST
Section 1. The terms and provisions of this lease shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto, provided, however, that no assignment by or through the Tenant in
violation of the provisions hereinbefore contained shall vest any right in any
party claiming under any such assignment, and provided, further, that no
assignment or subletting made by the Tenant with the consent of the Landlord
shall relieve the Tenant from any liability to fulfill any obligation hereunder,
it being the intention of the parties hereto that the Tenant shall assume and be
liable to the Landlord for any and all acts or omissions of any and all
assignees, subtenants or undertenants.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
Signed, sealed and delivered
in the presence of: LANDLORD:
O.C. REALTY ASSOCIATES LIMITED
PARTNERSHIP
By: Opticare Eye Health Center,
P.C. - Waterbury,
Its General Partner
/s/
____________________________
By /s/ Dean Yimoyines
_________________________________
Dean Yimoyines,
Its President
/s/
_____________________________
TENANT:
OPTI CARE EYE HEALTH CENTER,
P.C. - WATERBURY
/s/
_____________________________
By /s/ Dean Yimoyines
__________________________________
Dean Yimoyines,
Its President
/s/
_____________________________
<PAGE>
SCHEDULE A
(DESCRIPTION)
ALL THAT CERTAIN piece or parcel of land, together with the buildings thereon,
situate in the Town of New Milford, County of Litchfield and State of
Connecticut, at or near Park Lane, so-called, bounded and described as follows:
NORTHERLY: By Town Road, leading from New Milford to Washington, 135
feet, more or less;
EASTERLY: By land of Garetta D. and John J. Brutz, and by land of Garry S.
Camp, 200 feet, more or less;
SOUTHERLY: By land of Clarence S. Burden and C. Elvira Burden, 150 feet,
more or less; and,
WESTERLY: By Connecticut State Highway, Route #25, 160 feet, more or less.
The above distances being running feet measured over the land and not intended
to be accurate.
<PAGE>
EXHIBIT 10.21
SERVICES AGREEMENT (HSO MODEL)
PRIME VISION HEALTH, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 - Definitions 1
Section 1.1 Certain Defined Terms 1
(a) "Affiliate" 1
(b) "Bankruptcy Act" 2
(c) "Company Event" 2
(d) "Contract Year 2
(e) "Management Information System" 2
(f) "Office" 2
(g) "Optometrists" 2
(h) "Owner Operations" 3
(i) "Person" 3
(j) "Physicians" 3
(k) "Physician Extender Employees" 3
(l) "Practice Revenues" 3
(m) "Shareholders" 3
Section 1.2 Other Defined Terms 3
Section 1.3 References 3
ARTICLE 2 - Company's Obligations 4
Section 2.1 No Medical Services 4
Section 2.2 Core Services 4
(a) Standard Marketing Program and Templates 4
(b) HSO Buying Group 5
(c) Managed Care Contract Priority 5
Section 2.3 Supplemental Services 6
Section 2.4 No Other Services6
ARTICLE 3 - Owner's Obligations 6
Section 3.1 Furniture, Fixtures and Equipment 6
Section 3.2 Employment of Medical and Non-Medical Staff 6
Section 3.3 Day-to-Day On-Site Operations 6
ARTICLE 4 - Compensation 6
Section 4.1 Services Fee 6
Section 4.2 Fee Fair and Reasonable; Not Payment for Referral 7
Section 4.3 Payment of Services Fee 7
Section 4.4 Statement of Practice Revenues 7
Section 4.5 Expenses 8
ARTICLE 5 - Term of Agreement 8
Section 5.1 Term 8
Section 5.2 Early Termination 8
Section 5.3 Buy-Out by Owner 9
<PAGE>
Section 5.4 Effect of Early Termination Generally 9
ARTICLE 6 - Other Agreements of Parties 10
Section 6.1 Relationship of Parties 10
Section 6.2 No Warranty 10
Section 6.3 No Obligation or Inducement to Refer 10
Section 6.4 Confidentiality 11
Section 6.5 Access to Books and Records 12
Section 6.6 Retaining Business Records 12
Section 6.7 Exclusivity of Agreement 12
Section 6.8 Assistance to Company 13
Section 6.9 Release of Claims by Owner and Initial Shareholders 13
Section 6.10 Release of Claims by Company 13
Section 6.11 Admission of Shareholders 14
Section 6.12 Obligations of the Shareholders 14
Section 6.13 Sales and Use Tax 14
Section 6.14 Exclusion by Owner of Certain Sources of Revenue 14
ARTICLE 7 - Indemnification 15
Section 7.1 Indemnification by the Owner 15
Section 7.2 Indemnification by the Company 15
ARTICLE 8 - Representations of the Parties 16
Section 8.1 Representations of Company 16
(a) Organization and Good Standing 16
(b) No Violation 16
(c) No Claims Against Owner 16
Section 8.2 Representations of the Owner 16
(a) Organization and Good Standing 16
(b) No Violation 17
(c) No Claims Against Company 17
ARTICLE 9 - Miscellaneous 18
Section 9.1 Violation of Law 18
Section 9.2 Assignments 18
Section 9.3 Notices 19
Section 9.4 Severability 19
Section 9.5 Governing Law 20
Section 9.6 Entire Agreement; Amendment 20
Section 9.7 Headings 20
Section 9.8 Waiver 20
Section 9.9 Construction of Words 20
Section 9.10 Prevention of Performance by Company 20
Section 9.11 Remedies 21
Section 9.12 No Referrals 21
Section 9.13 Attorneys' Fees 21
<PAGE>
Section 9.14 Survival 21
Section 9.15 Confidentiality of Records 21
Schedules:
Schedule 1.1(f) List of Owner Facilities
Schedule 1.1(l) Exceptions to Practice Revenues
Schedule 2.2(b) Exceptions to HSO Buying Group
Schedule 2.3 Supplemental Services
Schedule 4.4 Form of Statement of Practice Revenues
Schedule 6.9 Exceptions to Release of Claims by Owners and
Initial Shareholders
Schedule 6.10 Exceptions to Release of Claims by Company
Schedule 6.11 Joinder Agreement
Schedule 8.1(c) Company Claims
Schedule 8.2(c) Third Party Claims
<PAGE>
SERVICES AGREEMENT
This Services Agreement (the "Agreement") is made and entered into this
____ day of __________, 1999 (the "Effective Date"), by and between Prime Vision
Health, Inc., a Delaware Corporation (the "Company"), and, P.A., a professional
corporation (the "Owner"), and, M.D., (collectively, the "Initial Shareholders")
(individually, a "Party" and collectively, the "Parties").
W I T N E S S E T H:
WHEREAS, the Owner is a professional corporation whose professional
employees provide ophthalmic and/or optometric care and products to the general
public; and
WHEREAS, the Company is in the business of providing consulting,
administrative, and other support services to ophthalmology and optometric
practices; and
WHEREAS, the Owner desires to obtain the services of the Company in
performing such services under the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
on the terms and subject to the conditions herein set forth, the Parties have
agreed and do hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Certain Defined Terms. When used in this Agreement and any
attachment thereto, the following capitalized words and phrases shall have the
following meanings assigned to them:
(a) "AFFILIATE" means, with respect to any Person, a Person
that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with the
specified Person; provided, however, that neither the Company nor the
Owner shall be deemed to be an Affiliate of the other and provided,
further, that the Owner and the Company expressly agree that OptiCare
Eye Health Centers, Inc. and its Affiliates shall be deemed to be
Affiliates of the Company.
(b) "BANKRUPTCY ACT" means the Bankruptcy Code, as amended, of
the United States of America and any other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of payments or similar debtor
relief law (whether state or federal) from time to time in effect
affecting the rights of creditors generally.
(c) "COMPANY EVENT" means the occurrence of any of the
following events:
<PAGE>
(i) The dissolution of the Company;
(ii) The filing of a voluntary petition in bankruptcy
or for reorganization under the Bankruptcy Act or a petition
for the appointment of a receiver of all or any substantial
portion of the property of the Company;
(iii) The consent by the Company to an order for relief
under the Bankruptcy Act or the failure to vacate such an
order for relief within ninety (90) days from and after the
date of entry thereof; or
(iv) The entry of any order, judgment, or decree
adjudging the Company as bankrupt or insolvent or which
appoints or provides for the taking of possession by a
receiver, trustee, liquidator, or similar official for any of
the property of the Company, and any such order, judgment, or
decree continuing unstayed and in effect for a period of
ninety (90) days.
(d) "CONTRACT YEAR" means any year beginning on the Effective
Date as set forth herein, or on any anniversary of the Effective Date.
(e) "MANAGEMENT INFORMATION SYSTEM" means the various
management information systems owned or licensed by the Company.
(f) "OFFICE" means any office space, clinic, or facility that
the Owner or the Company shall own or lease or otherwise procure for
use in the Owner's business or businesses and identified, from time to
time, on SCHEDULE 1.1(F).
(g) "OPTOMETRISTS" (O.D.s) means those individuals who are
Doctors of Optometry employed by or under contract or associated with
the Owner to provide professional optometrical services to patients of
the Owner.
(h) "OWNER OPERATIONS" means the businesses, operations and
activities of the Owner that are carried out at the Office or in
connection with the performance or delivery of professional
ophthalmology, optometric or optical services.
(i) "PERSON" means an individual, a corporation, a
partnership, a limited liability company, an association, a joint-stock
company, a trust, any unincorporated organization, or any government or
political subdivision thereof.
(j) "PHYSICIANS" means those Ophthalmologists (M.D.s or D.O.s)
who are physicians employed by or under contract or associated with the
Owner to provide professional medical services to patients of the
Owner.
(k) "PHYSICIAN EXTENDER EMPLOYEES" means nurse anesthetists,
physician assistants, nurse practitioners, or similar positions that
generate a professional or
<PAGE>
technical charge who are employed by or under contract or associated
with the Owner to provide services to patients of the Owner.
(l) "PRACTICE REVENUES" means, for any month, any and all
revenue actually collected by or on behalf of the Owner and/or the
Shareholders, no matter where generated, that resulted from the
provision of ophthalmology, optometric and optical services, the sale
of optical products, or otherwise by any professional activities of the
Physicians, Optometrists or Physician Extender Employees, including
without limitation income from expert fees and income generated by
ambulatory surgical centers or Affiliates of the Owner; provided,
however, that Practice Revenues shall not include revenue described on
SCHEDULE 1.1(L), as such Schedule may be amended from time in
accordance with Section 6.14 hereof.
(m) "SHAREHOLDERS" means the Initial Shareholders and any
other Person who may from time to time become a shareholder of the
Owner after the Effective Date and who shall execute a Joinder
Agreement in accordance with Section 6.10 hereof.
Section 1.2 Other Defined Terms. Any capitalized term not specifically
defined in Section 1.1 shall have the meaning provided for the term in the
section in this Agreement in which such term is first used.
Section 1.3 References. All references in this Agreement to "Sections"
or "Articles" shall be to sections and articles of this Agreement unless
otherwise noted. The words "hereof," "herein," "hereby," "hereinafter,"
"heretofore," "hereunder" and words of similar import shall also refer to
material set forth in this Agreement as a whole and not to any particular
subdivision unless expressly so limited.
ARTICLE 2
Company's Obligations
Section 2.1 No Medical Services. The Parties expressly acknowledge and
agree that this Agreement is not intended to and shall not be construed to
permit the Company to make referrals of patients to the Owner nor to become
engaged in any services or activities which constitute the practice of
ophthalmology or optometry or to interfere with, control, direct or supervise
any Physician, Optometrist or other health care provider in the exercise of his
or her professional judgment. The Owner shall be responsible for the control and
direction of all medical and other health care providers for the care and
treatment of all patients or clients, for the provision of all medical and other
health care services, and for ensuring that all such services are provided in
accordance with applicable federal, state and local laws and regulations, the
requirements of Medicare and Medicaid and other third party payors and the
applicable cannons of professional ethics.
Section 2.2 Core Services. The Company shall provide the services set
forth below (the "Core Services"), for the compensation set forth in Article 4.
<PAGE>
(a) Standard Marketing Program and Templates. The Company
shall provide the Owner with standardized marketing and promotional
materials, including brochures, print, and other media advertising
copy, all in a "camera-ready" format (the "Marketing Materials") for
potential use by the Owner. On a schedule and in a format to be
determined by the Parties, the Company shall provide the Owner with
updates to the Marketing Materials. The Owner agrees to use the
Marketing Materials in compliance with guidelines provided to the Owner
from time to time by the Company (the "Guidelines"). Any modifications
to the Marketing Materials by the Owner shall be in compliance with the
Guidelines and all costs and expenses relating to such modifications
shall be the responsibility of the Owner. The Owner may also request
that the Company modify or customize the Marketing Materials, provided,
however, that any such modification or customization shall be an Annual
Marketing Plan service subject to the terms and condition set forth in
SCHEDULE 2.3. Nothing herein shall be construed to grant to the Owner a
license to use any trade name owned or licensed by the Company;
provided, however, that the Owner shall be granted non-exclusive,
royalty-free license to use the trade name "OptiCare" in the event that
the Owner selects Annual Marketing Plan services as described in
SCHEDULE 2.3 hereof.
(b) HSO Buying Group. The Company shall provide to the Owner
purchasing services for various items useful to the business of the
Owner ("HSO Buying Group Goods"). HSO Buying Group Goods may, in the
discretion of the Company, include:
(i) optical goods;
(ii) office supplies, discounted services, including
telephone service, property and casualty insurance, general
and professional liability insurance, health insurance and
other ancillary services ("Value Added Services");
(iii) refractive surgery related equipment and
services; and
(iv) related goods and materials
Prices charged to the Owner for HSO Buying Group Goods shall be at the
same per unit prices as the Company is charged for such goods. On a
schedule and in a format to be determined by the Parties, the Company
shall advise the Owner of the HSO Buying Group Goods that are available
and the respective pricing for such goods. Costs of all HSO Buying
Group Goods so purchased shall be responsibility of the Owner. The
Owner hereby agrees that, except with respect to Value Added Services
which may be purchased by the Owner from any supplier thereof and
services described on SCHEDULE 2.2(b) hereof, it shall not purchase any
goods that are offered as HSO Buying Group Goods from any supplier of
goods other than the Company (an "Outside Supplier"); provided,
however, that the Owner may purchase certain enumerated goods from an
Outside Supplier in the event that (i) the Owner notifies the Company
in writing that the Owner can purchase certain goods from an Outside
Supplier, which goods shall be enumerated in such notice, at a per unit
price that is less than the per unit price charged by the Company; (ii)
the Owner provides to the Company written documentation of the price
for such goods offered by the Outside Supplier; and (iii) the Company
does not,
<PAGE>
within thirty (30) days after receipt of the information described in
(i) and (ii), match the price offered by the Outside Supplier.
(c) Managed Care Contract Priority. The Company agrees to use
its best commercial efforts to secure contracts with managed care,
self-insured employer, institutional health care providers and payors,
health maintenance organizations, preferred provider organizations,
exclusive provider organizations, Medicare, Medicaid and other similar
persons in the geographic market of the Office, subject to reasonable
business prudence regarding the viability and pricing of such potential
contracts, as determined in the sole discretion of the Company. The
Company agrees, providing the Owner meets all of the credentialling
requirements for a particular contract, to include the Owner on panels
servicing the Owner's geographic area. Without the express prior
written consent of the Owner, which consent may be withheld in the sole
and absolute discretion of the Owner, the Company shall not negotiate a
Managed Care Contract, for or on behalf of Owner, nor shall it disclose
any confidential information concerning Owner to any third party for
the purpose of negotiating a Managed Care Contract.
Section 2.3 Supplemental Services. The Company shall offer to the Owner
certain additional services (the "Supplemental Services") as set forth in
SCHEDULE 2.3. In the event that the Owner elects to purchase any such
Supplemental Services, such services shall be provided by the Company for such
fees and under such terms and conditions as are forth in SCHEDULE 2.3 and in any
letter agreement of the Parties applicable to the provision of such Supplemental
Services.
Section 2.4 No Other Services. Except for the Core Services and any
Supplemental Services selected by the Owner in accordance with SCHEDULE 2.3, the
Company shall not be obligated to provide any other services to the Owner.
ARTICLE 3
Owner's Obligations
Section 3.1 Furniture, Fixtures and Equipment. The Owner shall provide,
purchase, repair and/or replace all furniture, fixtures and equipment necessary
or appropriate for the operation of the Office.
Section 3.2 Employment of Medical and Non-Medical Staff. The Owner
shall provide all medical and non-medical staff necessary for operation of the
Office. The Owner shall have complete control of and responsibility for the
hiring, compensation, supervision, training, evaluation and termination of its
Physicians, Optometrists, Physician Extender Employees and all other employees.
Section 3.3 Day-to-Day On-Site Operations. Unless otherwise provided
herein or in any letter agreement executed in accordance with SCHEDULE 2.3, the
Owner shall be responsible for staffing, oversight and management of all
day-to-day Owner Operations, including, but not limited to, scheduling,
housekeeping, records management, inventory, and ordering of supplies. The Owner
shall contract directly with payroll processor, collection agency, and all other
vendors of services, as applicable, at the Owner's cost.
<PAGE>
ARTICLE 4
Compensation
Section 4.1 Services Fee. The Owner shall pay to the Company a services
fee ("Services Fee") in accordance with the following rates:
(a) On the first Seven Million Dollars ($7,000,000) of
Practice Revenues in a given Contract Year: three percent (3%) of such
Practice Revenues;
(b) On Practice Revenues between Seven Million Dollars
($7,000,000) and Twelve Million Dollars ($12,000,000) in the same
Contract Year: two percent (2%) of such Practice Revenues; and
(c) On Practice Revenues over Twelve Million Dollars
($12,000,000) in the same Contract Year: one percent (1%) of such
Practice Revenues.
Section 4.2 Fee Fair and Reasonable; Not Payment for Referral. The
Parties hereto agree that the Services Fee has been determined as a result of
arm's-length negotiation and is fair and reasonable for the services to be
performed by the Company hereunder. No amount paid hereunder is intended to be,
nor shall be construed as, an inducement or payment for referral of or
recommending referral of, patients of the Owner to the Company, or by the
Company to the Owner. Such fees do not include any discount, rebate, or other
reduction in charge.
Section 4.3 Payment of Services Fee. The Services Fee will be paid
monthly by the Owner based on Practice Revenues during the preceding month, and
is payable by the Owner in cash within fifteen (15) days of the end of the month
in question. The Owner hereby agrees that in the event that any payment
hereunder is not timely paid, in whole or in part, interest shall accrue on the
unpaid balance at the rate of ten percent (10%) per annum. The Owner further
agrees that in the event that the Company is required to institute suit to
collect any unpaid balance, the Company shall be entitled to recover, and any
judgment entered in favor of the Company shall include, the reasonable
accountants' fees, attorneys' fees and costs incurred by the Company in
collecting the monies due to the Company hereunder.
Section 4.4 Statement of Practice Revenues. Within ten (10) days after
the end of each month, the Owner shall provide to the Company an accounting of
Practice Revenues (the "Statement of Practice Revenues") in the form set forth
on SCHEDULE 4.4 hereof. The Company shall have the right, at any time, to notify
the Owner of any disagreement with the Statement of Practice Revenues. In the
event that the Company has notified the Owner of a disagreement regarding any
Statement of Practice Revenues, the Company and the Owner shall attempt in good
faith to resolve their dispute. If after thirty (30) days after the Company's
notice of disagreement the Company and the Owner shall have failed to reach a
written agreement with respect to such dispute, the matter shall be referred to
one of the so-called "Big Five" accounting firms mutually acceptable to the
Company and the Owner (the "Independent Accounting Firm") for final resolution.
Within thirty (30) days after referral to it, the Independent Accounting Firm
<PAGE>
shall issue and deliver to the Company and the Owner a report as to its
calculation of the Practice Revenues, which shall be final, binding and
non-appealable. All costs relating to the preparation of the report of the
Independent Accounting Firm shall be shared equally by the Company and the
Owner.
Section 4.5 Expenses.
(a) Of the Company. The payments to be made to the Company
pursuant to this Article 4 will fully compensate the Company for its
provision of Core Services, and the Owner shall owe no other or further
compensation or commission of any kind with respect to the provision of
Core Services. Except as otherwise provided in this Agreement, the
Owner shall not have any liability for expenses incurred by the Company
in the performance of its obligations under this Agreement.
(b) Of the Owner. Except as otherwise provided in this
Agreement, the Company shall not have any liability for expenses
incurred by the Owner in the operation of the Office.
ARTICLE 5
Term of Agreement
Section 5.1 Term. Subject to the provisions of Section 5.2, the initial
term of this Agreement (the "Initial Term") shall consist of a fifteen (15)-year
period commencing on the Effective Date. The term of this Agreement shall be
extended thereafter upon mutual agreement of the Parties, for additional three
(3)-year periods (each an "Extended Term"), whether one or more, commencing on
the expiration of the Initial Term and on the expiration of each succeeding
Extended Term. The Owner shall provide the Company with written notice of its
desire to renew the Agreement at least three (3) months before the expiration of
the Initial Term or an Extended Term, as applicable, and the Company shall
provide a written response to the Owner within thirty (30) days indicating
whether it agrees to renew the Agreement.
Section 5.2 Early Termination. Notwithstanding anything contained in
Section 5.1 to the contrary, this Agreement may be terminated:
(a) By the Company, immediately upon delivery of written
notice of termination to the Owner, in the event that the Owner or any
Shareholder breaches any representation, warranty, covenant or any
other agreement contained herein, including any obligation to pay the
Services Fee, and such breach shall remain unremedied, after written
notice thereof shall have been given to the Owner by the Company, for a
period of sixty (60) days.
(b) By the Owner, immediately upon delivery of written notice
of termination to the Company, in the event that both of the following
occur:
<PAGE>
(i) a Company Event; and
(ii) the Company fails to provide or arrange for the
provision of Core Services hereunder and such failure shall
remain unremedied, after written notice thereof shall have
been given to the Company by the Owner, for a period of sixty
(60) days.
(c) By either the Company or the Owner, immediately upon
delivery of written notice of termination to the other Party upon any
other right of termination as specifically provided herein.
Section 5.3 Buy-Out by Owner. Unless otherwise provided herein, in the
event of an early termination of this Agreement, for any reason, within the
first five (5) Contract Years, the Owner agrees to pay to the Company a sum
equal to $1,956,242 (the "Buy-Out Price"). In the event of early termination of
this Agreement, for any reason, at any time between the fifth and tenth Contract
Year, the Owner agrees to pay to the Company a sum equal to the Buy-Out Price,
reduced by twenty-five percent (25%). In the event of early termination of this
Agreement, for any reason, at any time after the tenth Contract Year, the Owner
agrees to pay to the Company a sum equal to the Buy-Out Price, reduced by fifty
percent (50%). The Buy-Out Price, as reduced if applicable by the preceding two
sentences, shall be paid in cash, less the amount of any outstanding
Subordinated Promissory Notes issued pursuant to section 2.3 of the Transition
Agreement, by the Owner to the Company within sixty (60) days following the
early termination of this Agreement; provided, however, that if such early
termination has been initiated by the Owner, the Buy-Out Price shall be paid in
cash by the Owner to the Company within five (5) business days following such
early termination. Notwithstanding the above, in the event of a termination
pursuant to Section 5.2(b), the Owner, but not the Shareholders, will be liable
for payment of the Buy-Out Price. Upon payment by the Owner to the Company of
the Buy-Out Price, all other obligations of the Owner to the Company (other than
payment of Services Fee and/or other fees relating to services provided by
Company prior to the termination date) shall be deemed discharged.
Notwithstanding the above, if after an early termination for any reason as
described above, the Owner and/or the Shareholders continue to pay the Company
the Services Fee, under the terms and conditions described in Section 4.3, the
Buy-Out Price described in this Section 5.3 shall not become due and payable.
Section 5.4 Effect of Early Termination Generally. Except as expressly
provided in Section 5.3 hereof, in the event of any early termination of this
Agreement, the Parties:
(a) shall thereupon have no further rights or obligations
hereunder, except for
(i) obligations accruing prior to the date of
termination,
(ii) obligations, promises, or covenants contained
herein which are expressly made to extend beyond, or which by
their terms or reasonable implication are to be performed in
whole or in part, after the termination of this Agreement,
including, without limitation, those relating to indemnities
and records retention and compensation, and
<PAGE>
(iii) rights to pursue any remedies herein or at law;
(b) shall cooperate with one another for the appropriate
transfer of Core Services and Supplemental Services, if applicable; and
(c) shall provide each other with reasonable access to books
and records owned by it to permit the other to satisfy reporting and
contractual obligations which may be required of it.
ARTICLE 6
Other Agreements of Parties
Section 6.1 Relationship of Parties. In the performance of the Parties'
duties and obligations under this Agreement, it is mutually understood and
agreed that the Company and the Owner are independent contractors and that the
relationship between them is that of a professional corporation and an
independent supplier of non-medical services. It is expressly agreed by the
Parties hereto that no work, act, commission or omission of the Company pursuant
to the terms and conditions of this Agreement shall be construed to make or
render the Company (and/or its employees, agents, shareholders and servants) the
agent, employee, or servant of the Owner, or to make or render the Owner (and/or
its employees, agents, shareholders and servants) the agent, employee or servant
of the Company. Neither this Agreement, nor its performance, shall constitute or
be construed to create a principal-agent, employer-employee, master-servant,
joint venture or partnership relationship between the Parties.
Section 6.2 No Warranty.
(a) The Owner acknowledges that the Company has not made and
will not make any express or implied warranties or representations that
the services provided by the Company will result in any particular
amount or level of Practice Revenues to the Owner or distributions to
shareholders of the Owner.
(b) The Company acknowledges that the Owner has not made and
will not make any express or implied warranties or representations that
Practice Revenues will remain at, or increase above, any particular
amount or level.
Section 6.3 No Obligation or Inducement to Refer. The Parties
acknowledge and agree that the consideration being paid hereunder is not
intended, directly or indirectly, as an inducement to refer, or in return for
purchasing or recommending purchasing an item or service reimbursable under
Medicare, Medicaid or other government reimbursed health care program. No
provision hereof is intended to nor shall be construed as directing or
restricting referrals for items or services payable under Medicare, Medicaid or
other government reimbursed health care program.
Section 6.4 Confidentiality.
<PAGE>
(a) All Marketing Materials designed and developed by the
Company to assist the Owner in the marketing of Owner Operations,
together with any and all such other marketing materials as may be
customized by the Company for the Owner, shall belong to and be the
exclusive property of the Company.
(b) Upon termination of this Agreement, the Owner shall
promptly relinquish to the Company all papers, documents, writings,
files, data, or materials, including, without limitation, the Marketing
Materials, belonging to the Company that are, at such time, in the
possession of the Owner.
(c) In the event of a breach or attempted breach by the Owner
of the provisions of this Section 6.4, the Owner and the Company
acknowledge and agree that irreparable harm would come to the Company,
as owner of such information in such event, that a remedy at law for
such a breach or attempted breach would be inadequate, and that the
Company shall be entitled, at its election, to seek injunctive relief
without the necessity of posting bond therefor, against such breach or
attempted breach, in addition to any other remedies at law or equity
available to the Company for such breach or attempted breach, including
the recovery of damages from the Owner therefor.
(d) All marketing materials, advertisements, programs, guides,
publications, pamphlets, flyers and all such other forms of information
and materials (collectively, "Owner Marketing Materials") designed and
developed by the Owner for its use in the marketing of Owner
Operations, together with any and all such other Owner Marketing
Materials designed and/or developed by the Owner, shall belong to and
be the exclusive property of the Owner.
(e) Upon termination of this Agreement, the Company shall
promptly relinquish to the Owner all papers, documents, writings,
files, data or materials belonging to the Owner that is, at such time,
in the possession of the Company, subject to the Company's rights to
retain copies of medical records as provided elsewhere herein.
(f) In the event of a breach or attempted breach by the
Company of the provisions of this Section 6.4, the Owner and the
Company acknowledge and agree that irreparable harm would come to the
Owner, as owner of such information in such event, that a remedy at law
for such a breach or attempted breach would be inadequate, and that the
Owner shall be entitled, at its election, to seek injunctive relief
without the necessity of posting bond therefor, against such breach or
attempted breach, in addition to any other remedies at law or equity
available to the Owner for such breach or attempted breach, including
the recovery of damages from the Company therefor.
Section 6.5 Access to Books and Records. Throughout the term of this
Agreement, the Owner shall permit the Company and its counsel, accountants and
other representatives full and free access, upon reasonable notice and during
normal business hours, to all those properties, books, tax returns, contracts,
commitments, records, officers and personnel of the Owner that the Company
reasonably deems necessary in order for it to (i) verify the Owner's calculation
of the
<PAGE>
Services Fee or other amounts payable pursuant to the Transition Agreement and
the Services Agreement and/or (ii) attend to tax or regulatory issues relating
to the Owner's arrangements with the Company prior to the Effective Date. Such
access includes access to accountants and others who may have prepared relevant
financial statements, including monthly Statements of Practice Revenues, and
includes the furnishing by the Owner to the Company of all those materials and
information described above as the Company or its counsel, accountants and other
representatives may reasonably request. Notwithstanding the Company's right at
any time to verify the Owner's calculation of the Services Fee, as set forth
above, the Company agrees that it will not challenge the calculation of any
Services Fee in any particular Contract Year after September 30th of the
following year. All information that may be provided by the Owner pursuant to
this Section, or otherwise obtained by the Company or its representatives, shall
be confidential information, and the exclusive property of the Owner, and shall
not be disclosed by the Company or its representatives to any party without the
express prior written consent of the Owner.
Section 6.6 Retaining Business Records. During the term of this
Agreement and until the expiration of four (4) years (required by certain tax
law statutes) after the furnishing of the services to be provided hereunder, the
Owner and the Company shall make this Agreement and each of their books,
documents and records relating thereto available to the Secretary of the
Department of Health and Human Services, the Comptroller General of the United
States or their duly authorized representatives to the extent required by Title
42 of the United States Code. The Company further agrees that in the event it
carries out any of its duties under this Agreement through a subcontract with a
value or cost of Ten Thousand Dollars ($10,000) or more over a twelve (12)
- -month period with a related organization, such subcontract shall contain a
clause to the effect that until the expiration of four (4) years after the
furnishing of such services pursuant to such subcontract, the related
organization shall make a copy of such subcontract and such of its books,
documents and records relating thereto, available to the Secretary of the
Department of Health and Human Services, the Comptroller General of the United
States or their duly authorized representatives to the extent required by Title
42 of the United States Code. Disclosure pursuant to this Section shall not be
construed as a waiver of any other legal right to which the Company may be
entitled under law or regulation.
Section 6.7 Exclusivity of Agreement.
(a) The Owner has the right to contract with other parties for
the provision of services that are the same or similar to the Core
Services or the Supplemental Services offered by the Company hereunder;
provided, however, that the Owner shall not be permitted to buy any
goods offered as HSO Buying Group Goods from any Outside Supplier,
except as provided in Section 2.2(b) hereof.
(b) The Company has the right to contract with other parties
for the provision by the Company of the same or similar services as
long as the provision of such services does not infringe materially
upon the ability of the Company to perform its duties under this
Agreement.
<PAGE>
(c) The Company agrees that it shall not, without the prior
written consent of the Owner which consent shall not be unreasonably
withheld, contract in a Services Agreement (HSO model) with any other
Ophthalmology practice that (i) provides ophthalmic and/or optometric
care and products to the general public; and (ii) Alamance, Chatham,
Caswell and Orange counties.
Section 6.8 Assistance to Company. The Owner agrees to assist the
Company in its efforts to identify other entities within its geographic area
that provide ophthalmic and/or optometric care and products to the general
public and that might be interested in contracting with the Company for the
provision of various services. Notwithstanding the foregoing, the Company shall
not enter into any contract or agreement in violation of Section 6.7(c) hereof.
Section 6.9 Release of Claims by Owner and Initial Shareholders. Except
as set forth in SCHEDULE 6.9, the Owner and the Initial Shareholders agree to
release any and all claims it or they may have against the Company or any of its
Affiliates, or against the Company's or any of its Affiliates' directors,
officers, shareholders, employees, or agents arising out of or in any way
connected to: (a) the Clinic Assets (as defined in that certain Administrative
Services Agreement, dated 1st day of July, 1996, by and among the Company, the
Owner and the Initial Owner Physician Shareholders named therein (the "ASA")) or
the repurchase thereof by the Owner; (b) the provision by the Company of
services pursuant to the ASA; or (c) any other agreement, arrangement or
relationship between the Owner and the Company or any Affiliate of the Company,
which agreement, arrangement or relationship was in existence as of or prior to
the Effective Date of this Agreement.
Section 6.10 Release of Claims by Company. Except as set forth in
SCHEDULE 6.10, the Company agrees to release any and all claims it may have
against the Owner or Initial Shareholders, or against the Owner's directors,
officers, shareholders, employees, or agents arising out of or in any way
connected to: (a) the Clinic Assets (as defined in the ASA) or the repurchase
thereof by the Owner; (b) the provision by the Company of services pursuant to
the ASA; or (c) any other agreement, arrangement or relationship between the
Owner and the Company or any Affiliate of the Company, which agreement,
arrangement or relationship was in existence as of or prior to the Effective
Date of this Agreement.
Section 6.11 Admission of Shareholders. Except for the person(s)
identified on Schedule 6.11(a), the Owner agrees that it will not, without the
express written consent of the Company, permit any Person to become a
shareholder of the Owner unless such Person (i) executes a Joinder Agreement in
the form attached hereto as SCHEDULE 6.11(B) or (ii) receives a written waiver
from the Company.
Section 6.12 Obligations of the Shareholders.
(a) Each Shareholder agrees that, except where indicated
otherwise, the obligations of the Owner hereunder are the ultimate
responsibility of the Shareholders. In accordance with the foregoing,
each Shareholder agrees that he or she shall not transfer his or her
shares in the Owner to any third party or to the Owner for repurchase
unless and until (i) he or she has obtained the Company's consent
thereto in writing, which
<PAGE>
consent shall not be unreasonably withheld; and (ii) in the event that
the transferee is not already a party to this Agreement, the transferee
executes a Joinder Agreement in the form attached hereto as SCHEDULE
6.11.
(b) Notwithstanding anything herein to the contrary, the
obligations of any Shareholder hereunder shall terminate upon such
Shareholder's death, permanent and total disability, or permanent
retirement. For purposes of this Section 6.12, "permanent and total
disability" shall mean the inability, due to any illness, disability or
incapacity, of the Shareholder to perform the essential functions of
his or her position after reasonable accommodation. The Owner shall
immediately notify the Company in writing of any Shareholder's death,
permanent and total disability, or permanent retirement.
(c) In the case of a Shareholder who leaves the Owner, for
reasons other than death, disability or permanent retirement as set
forth in Section 6.12(b) above, such Shareholder's obligation to pay a
Services Fee based upon his or her collections shall be waived if, on
an annual basis, the Owner's Practice Revenues after such Shareholder's
departure equal or exceed the average annual Practice Revenues of the
Owner for the three (3) prior years.
Section 6.13 Sales and Use Tax. The Owner shall pay any and all
applicable sales and use taxes, if any, related to the Company's provision of
services hereunder.
Section 6.14 Exclusion by Owner of Certain Sources of Revenue. To the
extent that the Owner seeks, at any time after the Effective Date, to exclude
from Practice Revenues revenue sources not set forth on SCHEDULE 1.1(l), the
Owner shall notify the Company of its request and the Parties shall endeavor to
arrive at a mutually satisfactory arrangement; provided, however, that nothing
herein shall be construed to require the Company to grant the Owner's request,
and nothing herein shall relieve the Owner of its obligation hereunder should
the Company not grant the Owner's request.
ARTICLE 7
Indemnification
Section 7.1 Indemnification by the Owner.
(a) The Owner shall indemnify, hold harmless and defend the
Company and its Affiliates, and their respective officers, directors,
shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance in
the name of the Owner, resulting from the grossly negligent performance
or grossly negligent omission of the Owner and/or any of its employees
and/or subcontractors during the term of this Agreement (other than
when acting at the direction of or in accordance with the written
instructions from the Company), or any breach of this Agreement or any
<PAGE>
representation, warranty or covenant contained herein by the Owner
and/or its shareholders, agents, employees and/or subcontractors (other
than the Company).
(b) The obligations set forth in this Section 7.1 shall
continue in effect regardless of any expiration, termination, or
rescission of this Agreement.
Section 7.2 Indemnification by the Company.
(a) The Company shall indemnify and hold harmless the Owner
and its officers, directors, shareholders and employees, from and
against any and all liability, loss, damage, claim, causes of action,
and expenses (including reasonable attorneys' fees), to the extent not
covered by insurance in the name of the Company, resulting from the
grossly negligent performance or grossly negligent omission of the
Company and/or any of its employees and/or subcontractors during the
term of this Agreement (other than when acting at the direction of or
in accordance with the written instructions from the Owner), or any
breach of this Agreement by the Company and/or its shareholders,
agents, employees and/or subcontractors (other than the Owner).
(b) The obligations set forth in this Section 7.2 shall
continue in effect regardless of any expiration, termination, or
rescission of this Agreement.
ARTICLE 8
Representations of the Parties
Section 8.1 Representations of Company.
(a) Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware as of the date hereof, and has all
necessary power to own all of its properties and assets and to carry on
its business as now being conducted.
(b) No Violation. The Company has the corporate authority to
execute, deliver and perform this Agreement and all agreements executed
and delivered by it pursuant to this Agreement, and has taken all
action required by law, its certificate of incorporation, its bylaws or
otherwise to authorize the execution, delivery and performance of this
Agreement and such related documents. The execution and delivery of
this Agreement does not, and will not, violate any provisions of the
certificate of incorporation or bylaws of the Company or any provisions
of or result in the acceleration of, any obligation under any mortgage,
lien, lease, agreement, instrument, order, arbitration award, judgment
or decree, to which the Company is a party, or by which it is bound.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
<PAGE>
(c) No Claims Against Owner. Other than as set forth on
SCHEDULE 8.1(c), the Company does not have any claims against the Owner
or any Initial Shareholder arising out of or in any way connected to:
(1) the Clinic Assets, or the repurchase thereof by the Owner; (2) the
provision by the Company of services pursuant to the ASA; or (3) any
other agreement, arrangement or relationship between the Owner and the
Company or any Affiliate of the Company, which agreement, arrangement
or relationship was in existence as of or prior to the Effective Date
of this Agreement.
Section 8.2 Representations of the Owner.
(a) Organization and Good Standing. The Owner is a
professional corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina, and has all
necessary power to own all of its properties and assets and to carry on
its business as now being conducted. Throughout the term of this
Agreement, the Owner shall immediately notify the Company in writing if
any event occurs that would render the Owner unable to make the
representation contained in this Section as of the date thereof.
(b) No Violation. The Owner has the corporate authority to
execute, deliver and perform this Agreement and all agreements executed
and delivered by it pursuant to this Agreement, and has taken all
action required by law, its articles or certificate of incorporation,
its bylaws or otherwise to authorize the execution, delivery and
performance of this Agreement and such related documents. The execution
and delivery of this Agreement does not and, subject to the
consummation of the transactions contemplated hereby, will not, violate
any provisions of the articles or certificate of incorporation or
bylaws of the Owner or any provisions of or result in the acceleration
of, any obligation under any mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree, to which the
Owner is a party, or by which it is bound. This Agreement has been duly
executed and delivered by the Owner and constitutes the legal, valid
and binding obligation of the Owner, enforceable in accordance with its
terms. Throughout the term of this Agreement, the Owner shall
immediately notify the Company in writing if any event occurs that
would render the Owner unable to make the representation contained in
this Section as of the date thereof.
(c) No Claims Against Company. Other than as set forth on
SCHEDULE 6.9, neither the Owner nor the Initial Shareholders have any
claims against the Company or any of its Affiliates, or against the
Company's or any of its Affiliates' directors, officers, shareholders,
employees, or agents, arising out of or in any way connected to: (1)
the Clinic Assets, or the repurchase thereof by the Owner; (2) the
provision by the Company of services pursuant to the ASA; or (3) any
other agreement, arrangement or relationship between the Owner and the
Company or any Affiliate of the Company, which agreement, arrangement
or relationship was in existence as of or prior to the Effective Date
of this Agreement.
<PAGE>
ARTICLE 9
Miscellaneous
Section 9.1 Violation of Law. In the event that (a) a law firm that has
a nationally recognized expertise in health care law and is mutually agreed upon
by both the Company and the Owner renders an opinion to the Parties that a
material provision of this Agreement violates applicable law, or any court or
regulatory agency enters an order finding that a material provision of this
Agreement violates applicable law, and (b) this Agreement cannot be amended
pursuant to Section 9.6 to cure such violation, then the Agreement may be
terminated by either Party hereto. In the event of such termination, the Owner
shall have the obligations set forth in Section 5.3, above.
Section 9.2 Assignments.
(a) The Company shall have the right at any time and from time
to time to assign any or all of its rights and delegate any or all of
its obligations hereunder without the prior written consent of the
Owner; provided, however, that any such assignment shall in no way
relieve the Company of its duties, obligations, liabilities, or
responsibilities hereunder without the consent of the Owner; and
provided, further, that the Company may assign all or any part of its
right, title and interest in any payments to be received hereunder by
the Company to a bank or any other financial institution or any person,
firm or corporation from which the Company or any Affiliate thereof has
obtained, or will obtain, financing and the Company may grant a
security interest in such payments.
(b) Notwithstanding the provisions of Section 9.2(a) above,
the Company may assign this Agreement to any corporation or other
entity of any kind succeeding to the business of the Company in
connection with the merger, consolidation or transfer of all or
substantially all of the assets and business of the Company to such
successor.
(c) The Owner shall not assign any of its rights or delegate
any of its duties or obligations hereunder without the prior written
consent of the Company, which consent shall not be unreasonably
withheld.
(d) Except as provided in Section 6.11 hereof, no Shareholder
shall be permitted to assign his or her rights or delegate any of his
or her duties hereunder.
(e) All of the terms, provisions, covenants, conditions, and
obligations of this Agreement shall be binding upon, and inure to the
benefit of, the successors in interest and permitted assigns of the
Parties hereto.
Section 9.3 Notices. Except as otherwise expressly set forth herein,
all notices required or permitted to be given hereunder shall be in writing and
shall be deemed effective when personally delivered, sent via overnight delivery
or, if mailed, three (3) days after the date deposited in the United States
mail, postage prepaid, registered or certified, and return receipt
<PAGE>
requested. Unless changed by written notice given by one Party to the other as
provided herein, such notices shall be given to the Company at the following
address:
Prime Vision Health, Inc.
c/o OptiCare Eye Health Centers, Inc.
87 Grandview Avenue
Waterbury, CT 06708
Attention: President
with a copy to: Day, Berry & Howard LLP
CityPlace I
Hartford, Connecticut 06103-3499
Attention: William H. Cuddy, Esq.
and such notices shall be given to the Owner at the following address:
1214 Vaughn Road
Burlington, NC 27217
Section 9.4 Severability. In the event that any of the provisions of
this Agreement are held to be invalid or unenforceable by any court of competent
jurisdiction, the remaining provisions hereof shall not be affected thereby, and
the provision found invalid or unenforceable shall be revised or interpreted to
the extent permitted by law so as to uphold the validity and enforceability of
this Agreement and the intent of the Parties as expressed herein.
Notwithstanding the foregoing, if the compensation provisions herein or in
Schedule 2.3 hereof are held to be invalid or unenforceable by any court of
competent jurisdiction, and the Parties are unable, after a good faith effort,
to agree to an alternative compensation arrangement, then this Agreement may be
terminated by either Party. In the event of such termination, the Owner shall
have the obligations set forth in Section 5.3, above.
Section 9.5 Governing Law. This Agreement shall be governed by, and
interpreted, construed and enforced in accordance with, the laws of the State of
Delaware, applied without giving effect to any conflicts-of-law principles.
Section 9.6 Entire Agreement; Amendment. This Agreement constitutes the
entire agreement between the Parties with respect to the subject matter hereof
and supersedes any and all prior agreements, either oral or written, between the
Parties with respect thereto. Any modification to this Agreement must be made in
writing and signed by both of the Parties.
Section 9.7 Headings. The section headings used in this Agreement are
included solely for convenience and shall not affect the interpretation of this
Agreement.
Section 9.8 Waiver. No term or condition of this Agreement shall be
deemed to have been waived except by written instrument of the Party charged
with such waiver. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any subsequent breach
of the same or any other term or condition hereof.
<PAGE>
Section 9.9 Construction of Words. The language herein shall be
construed, in all cases, according to its plain meaning, and not for or against
either Party. The Parties acknowledge that each Party and its counsel have
reviewed and revised this Agreement and that the rule of construction which
states that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
Section 9.10 Prevention of Performance by Company.
(a) The Company shall not be liable for any loss or damage to
the Owner or any of shareholder of the Owner (including, without
limitation, direct, indirect, incidental and consequential damages) due
to any failure in its performance hereunder (i) because of compliance
with any order, request or control of any governmental authority or
person purporting to act therefor, whether or not said order, request
or control ultimately proves to have been invalid; or (ii) when its
performance is interrupted, frustrated or prevented, or rendered
impossible or impractical because of wars, hostilities, public
disorders, acts of enemies, sabotage, strikes, lockouts, labor or
employment difficulties, fires, or acts of God, or any cause beyond its
control, whether or not similar to any of the foregoing. Without
limitation of the foregoing, the Company shall not be required to
challenge or resist any such order, request or control, or to proceed
or attempt to proceed with performance if such shall involve additional
expense or a departure from its normal practices, unless the Parties
shall expressly agree as to the further obligations (including, without
limitation, an obligation to bear all or part of any such additional
expense) to be borne by the Owner as a result thereof.
(b) Nothing herein contained shall relieve the Owner of any
obligation to pay the amounts to be paid hereunder to the Company under
Article 4 hereinabove.
Section 9.11 Remedies. The remedies provided to the Parties by this
Agreement are not exclusive or exhaustive, but cumulative and in addition to any
other remedies the Parties may have, at law or in equity.
Section 9.12 No Referrals. The Parties clearly understand and
acknowledge that the choice of services and the choice of providers made by the
Owner must be, and shall be, made only with regard to the best medical interests
of each patient. The Company and the Owner thus specifically assure one another,
and the Company and the Owner each specifically acknowledges, that the
performance by the Company and the Owner of their respective obligations
hereunder in no way obligate, and is in no way contingent upon, the admission,
recommendation, referral or any other form of arrangement by, the Company or the
Owner (or any Physician or Optometrist) for utilization by patients or others of
any item or service offered by the Company or any of its Affiliates or the
Owner.
Section 9.13 Attorneys' Fees. Each Party shall be responsible for any
attorneys' fees and related costs incurred by it in the event that legal action
is commenced by either Party to enforce or defend its rights under this
Agreement.
Section 9.14 Survival. The indemnities, representations and warranties
set forth herein shall survive the termination of this Agreement.
<PAGE>
Section 9.15 Confidentiality of Records. The Company shall use its
reasonable efforts to protect the confidentiality of the records of the Owner
relating to Owner Operations, including, without limitation, patient medical
records, and shall comply with applicable federal, state, and local laws and
regulations, and medical ethical standards, pertaining to the records of the
Owner relating to Owner Operations. The Company shall take no action with
respect to such medical records to which the Owner objects, unless otherwise
required by law or to comply with an order of any court or governmental agency.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Company Services
Agreement on the date set forth above:
The Company:
Prime Vision Health, Inc.
By:
--------------------------------
Title:
--------------------------------
The Owner:
, P.A.
By:
--------------------------------
Title:
--------------------------------
Initial Shareholders:
- -------------------
- -------------------
- -------------------
<PAGE>
PROFESSIONAL SERVICES AND SUPPORT AGREEMENT
THIS PROFESSIONAL SERVICES AND SUPPORT AGREEMENT is entered into
effective as of the 1st day of December, 1995 by OPTICARE EYE HEALTH CENTERS,
INC. ("OptiCare"), a Connecticut corporation, with its principal office in
Waterbury, Connecticut, and OPTICARE P.C., a Connecticut professional
corporation having its principal place of business at 87 Grandview Avenue,
Waterbury, Connecticut ("Professional Corporation").
W I T N E S S E T H :
WHEREAS, the Professional Corporation is a Connecticut professional
corporation engaged in the practice of medicine and surgery through the work of
ophthalmologists, optometrists, nurses and others who are either employed by the
Professional Corporation or under contract with it to provide medical or surgery
services, and who are duly licensed under the laws of the State of Connecticut
(hereinafter the "Medical Staff");
WHEREAS, OptiCare is in the business of operating comprehensive
integrated eye health centers and eye health provider networks, including the
administration, support, and contracting for ophthalmology practices and
services, optometry practice and services, ambulatory surgery centers, retail
eye wear sales and fitting services, and eye wear manufacturing (collectively,
the "Business"); and
WHEREAS, OptiCare desires to have Professional Corporation, through its
Medical Staff, provide the medical services necessary to support OptiCare's
Business on an exclusive basis for ophthalmology and optometry services, and
Professional Corporation desires to provide such services, through its Medical
Staff, exclusively for patients of OptiCare.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions contained herein, the parties hereby agree as follows:
1. SERVICES AGREEMENT. The parties hereby agree to provide the
following services subject to the terms of this Agreement (referred to herein as
the "Services Agreement"). References herein to the "Practice" are to the
combined medical and business operations of the Professional Corporation and its
Medical Staff.
2. DUTIES OF THE PROFESSIONAL CORPORATION AND THE MEDICAL STAFF.
During the term of this Services Agreement, the Professional Corporation and the
Medical Staff shall, at the Professional Corporation's expense:
<PAGE>
(a) devote substantially all of the Medical Staff's professional time
and efforts to providing professional medical services at the offices of
OptiCare set forth in Schedule A attached hereto, which Schedule may be amended
by OptiCare from time to time. Such professional medical services shall be in
the fields of ophthalmology and optometry, and such other areas of medicine
requested by OptiCare and within the professional qualifications and
capabilities of the Professional Corporation and its Medical Staff;
(b) establish and implement medical practice standards, policies and
protocols, and provide medical services, at least consistent with generally
accepted professional standards for practice of ophthalmology and optometry,
respectively, including those recommended for the practice of ophthalmology from
time to time by the American Board of Ophthalmology, and in compliance with all
credentialing, quality assurance, practice standardization, risk management,
access, and/or utilization management programs, criteria and procedures which
OptiCare and Professional Corporation may mutually adopt, and/or with which
OptiCare is obligated to comply as part of its Business, including without
limitation, any such programs, criteria or procedures required by third-party
payers with whom OptiCare contracts, governmental agencies and accrediting
bodies;
(c) comply with all applicable provisions of the law and of the rules
and regulations of all governmental authorities relating to licensing and the
regulation of physicians, nurses and other licensed professionals on the Medical
Staff and the delivery of professional medical services by the Medical Staff;
(d) recommend the types and amounts of equipment and supplies to be
purchased by OptiCare for the use of the Practice and comply with all inventory
and ordering procedures and systems established by OptiCare to ensure that
reasonable inventories are available;
(e) cooperate and assist OptiCare in all Practice budget,
compensation, billing and collection matters and make recommendations to
OptiCare concerning such matters;
(f) develop training guidelines and provide training and supervision
of the Medical Staff rendering professional services to OptiCare, including,
without limitation, providing professional supervision of nurses, technicians
and other personnel rendering services to the Practice, all as required by
applicable law or the conditions of participation of third-party payors;
(g) cooperate with OptiCare in dealing with third-party payers;
(h) submit accurate and complete data required for the billing and
collection by OptiCare of fees for professional services provided by Medical
Staff;
(i) keep accurate and complete medical records of the professional
medical services performed by the Medical Staff;
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(j) monitor utilization and quality of services and notify OptiCare
promptly of, and cooperate with OptiCare in, implementing all necessary steps to
remedy any and all deficiencies in the efficiency or quality of the medical care
provided;
(k) cooperate with OptiCare in its obtaining professional liability
insurance for the Practice, and in OptiCare's handling of the defense and
settlement of all claims made against such insurance, including, without
limitation, promptly notifying OptiCare in writing upon: (A) the making of a
claim or institution of a lawsuit against the Professional Corporation or any
member of the Medical Staff relating in any way to services provided pursuant to
this Services Agreement; and (B) the filing of a complaint against the
Professional Corporation or any member of the Medical Staff with any
governmental agency or disciplinary board, or the loss, suspension or voluntary
relinquishment of any license or permit held by any member of the Medical Staff
necessary to the performance of such member's duties for the Practice, or the
cancellation or termination of his or her professional liability coverage; and
(1) obtain all legal services required by the Professional
Corporation in connection with the Practice including, without limitation,
engaging counsel (counsel shall be reasonably acceptable to OptiCare),
supervising counsel's engagement and controlling fees.
3. STAFFING AND HOURS OF OPERATION.
(a) The Professional Corporation shall cause each office and facility
of OptiCare to be adequately staffed with appropriately trained and licensed
medical personnel for full operation at hours established by OptiCare in its
discretion.
(b) Professional medical services furnished hereunder shall be
provided only by Medical Staff members who meet the requirements of this
Services Agreement for rendering professional services to OptiCare, and who are
either (i) employed by the Professional Corporation, or (ii) under written
contract with the Professional Corporation to provide professional medical
services, and who agree in writing to comply with the provision of this Services
Agreement. Each such Medical Staff member shall:
(i) provide clinical services consistent with generally
accepted professional medical standards and the
requirements of this Services Agreement;
(ii) (as to ophthalmologists only) be certified by the
American Board of Ophthalmology or be eligible by
training and experience to be certified by such
organization; and
(iii) be appropriately licensed to practice in the
jurisdiction(s) in which such member provides medical
services.
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<PAGE>
(c) The Professional Corporation shall be responsible for hiring or
entering into contracts with sufficient medical personnel to ensure that the
Medical Staff is adequate to meet the Professional Corporation's obligations
under this Services Agreement.
(d) The Professional Corporation, and each of the ophthalmologists
and optometrists on the Medical Staff employed by the Professional Corporation,
shall enter into an Employment Agreement (the "Employment Agreement") in the
form of and containing the terms and conditions set forth in Schedule B-l, B-2
or B-3 (as applicable) attached hereto. Ophthalmologists and optometrists on the
Medical Staff but not employees of the Professional Corporation, shall enter
into a written professional services agreement ("Professional Services
Contract") mutually acceptable to the Professional Corporation and OptiCare. The
Professional Corporation shall have the right, after consulting with OptiCare
and considering its recommendation, to terminate the Employment Agreement or
Professional Services Contract of a member of the Medical Staff, subject to the
terms and procedural requirements, if any, of the applicable Employment
Agreement or Professional Services Agreement.
4. DUTIES OF OPTICARE. During the term of this Services Agreement,
OptiCare shall, at its expense:
(a) provide appropriate facilities within OptiCare's offices, on a
gross basis, for use by the Professional Corporation and the Medical Staff (upon
recommendation of the Professional Corporation but in the final discretion of
OptiCare), including common areas, maintenance and utilities;
(b) provide technical and Practice support services;
(c) negotiate, enter into and administer contracts on behalf of the
Business and on behalf of the Professional Corporation as reasonably necessary
or desirable in connection with the terms, content and scope of services
rendered and to be rendered by the Business to third parties;
(d) provide all accounting, bookkeeping, and accounting control
services relating to the Practice, including, without limitation, development of
a system of accounts, preparation of monthly financial statements, development
of accounting procedures and controls, and assisting any outside auditors;
(e) provide billing and collection services for all Professional
Services rendered by the Professional Corporation as provided herein, consistent
with the provisions of Section 5 hereof;
(f) apply for and maintain in the Professional Corporation's name,
any filings, licenses, permits, notices or other documents required by
applicable governmental entities for the practice of medicine by the
Professional Corporation;
4
<PAGE>
(g) purchase professional liability (malpractice) and other
customary and reasonable types of insurance for the Practice, with limits,
deductibles and co-payment levels mutually agreed to by OptiCare and the
Professional Corporation, and handle the defense and settlement of all claims
made against such insurance with the advice, cooperation and assistance of the
Professional Corporation and the Medical Staff. Upon reasonable request,
OptiCare will furnish the Professional Corporation with certificates
demonstrating the type and terms of insurance coverage in effect; and
(h) except when the parties may otherwise agree, OptiCare shall have
the exclusive authority to negotiate and administer, after consultation with the
Professional Corporation regarding reimbursement and service rates, all
contracts with third party payers, employer groups, joint venturers and others
for the provision of medical services, including, without limitation, all
provider agreements, managed care agreements, network rental or access
agreements, and all capitation and reimbursement agreements, each of which
agreements shall be entered into by and be held in the name of OptiCare, or in
the name of an affiliate of OptiCare, unless prohibited by law.
5. BILLING AND COLLECTION.
(a) It is agreed that only OptiCare shall bill, collect and receive
payment for medical services rendered by the Medical Staff of the Professional
Corporation. OptiCare submit, in OptiCare's own name, all claims and other
documents necessary or appropriate for making claims for such services, to
collect, receive payment of, receipt for and give discharges and releases of all
claims for such medical services; to make demand with respect to, settle,
compromise and adjust such claims; and to commence and prosecute in OptiCare's
name or in the name of the Professional Corporation or any member of the Medical
Staff, any suit, action or proceeding to collect any such claims. OptiCare will
use commercially reasonable efforts to properly and promptly perform such
duties. In performing such duties, OptiCare shall have the right, after giving
reasonable notice, to inspect and copy the records of the Professional
Corporation relating to the medical services rendered by the Professional
Corporation and its Medical Staff, subject to applicable law. The Professional
Corporation shall ensure that each member of the Medical Staff shall submit
timely, accurate and complete billing information to OptiCare in compliance with
all applicable laws, regulations, policies and practices governing payment for
medical services rendered by the Professional Corporation.
(b) The Professional Corporation shall indemnify and save OptiCare
harmless from and against any and all losses, damages, claims, fines, penalties,
assessments and other expenses (including attorneys' fees and disbursements)
arising out of or in connection with the failure of the Professional
Corporation, or any member of the Medical Staff, to comply with the foregoing
provision. This provision shall survive termination of this Services Agreement.
(c) OptiCare shall indemnify and save the Professional Corporation
harmless from and against any and all losses, damages, claims, fines, penalties,
assessments and other expenses
5
<PAGE>
(including attorneys' fees and disbursements) arising out of or directly
resulting from the willful failure of OptiCare, to perform its obligations as
described in paragraph 5(a) above. This provision shall survive termination of
this Services Agreement.
6. MEDICAL STAFF CONSULTATION.
(a) The Medical Staff will, on a regular basis, consult with the
Quality Assurance Committee of the Professional Corporation on all medical
issues in the Practice.
(b) The Professional Corporation and the Medical Staff will, on a
regular basis, consult with and report to an individual or individuals
designated by OptiCare on all non-medical matters in the Practice.
(c) OptiCare will assist the Professional Corporation in monitoring
the utilization and quality of services provided by the Medical Staff and assist
the Professional Corporation in implementing any steps necessary to remedy any
and all deficiencies in the quality of medical care provided.
7. BOOKS AND RECORDS.
(a) The Professional Corporation shall be the keeper and custodian
of all records pertaining to medical services and care rendered in connection
with the Practice, and shall be the owner of all other records of the Practice.
The records pertaining to medical services and care shall at all times be freely
available for the use of the Medical Staff while in the employ of the
Professional Corporation; provided, however, that such medical records may not
be removed from the Practice without OptiCare's prior written consent unless
directed by the applicable patient. The Professional Corporation shall be
responsible for proscribing the content of the medical records maintained for
the Practice, consistent with applicable law, rules and regulations, and
consistent with the information and documentation requirements of third-party
payers with whom OptiCare contracts, and all applicable accrediting bodies. The
Professional Corporation shall adhere to the record retention and destruction
policies and procedures adopted by OptiCare, in consultation with the
Professional Corporation, for such medical and other records.
(b) The Professional Corporation shall not disclose information
relating to the patients of the Practice, or the medical or other records
related to such patients, to third persons other than the management of
OptiCare, or such governmental or private accreditation or licensing bodies or
third party reimbursement agencies with whom OptiCare has directed the
Professional Corporation to deal, unless the patient shall have given his/her
written consent for the release of the information or unless otherwise required
by law. The foregoing shall be deemed to include patients' records and all other
information and records kept in the normal operation of the Practice.
8. PAYMENT OF SERVICE CHARGES.
6
<PAGE>
(a) As consideration for the professional services to be provided by
the Professional Corporation under this Agreement, OptiCare shall pay to the
Professional Corporation compensation in accordance with the Professional
Corporation's annual compensation plan for each year, as mutually agreed to by
the Professional Corporation and OptiCare, minus expenses reasonably and
properly incurred during such year by the Professional Corporation in the
conduct of the Practice pursuant to its obligations under Section 2 of this
Services Agreement and which expenses are consistent with the Professional
Corporation's operating budget for the year mutually agreed to by the
Professional Corporation and by OptiCare.
(b) Such compensation shall be paid by OptiCare to the Professional
Corporation on a monthly or other mutually acceptable periodic basis, with an
annual settlement based upon actual fees and expenses, made within a reasonable
time after the end of each calendar year. Payment of compensation shall be made
by deposit in an account to be designated by the Professional Corporation.
9. INDEPENDENT CONTRACTOR.
(a) In the performance of their respective duties under this Services
Agreement, the Professional Corporation and its Medical Staff shall at all times
be acting and performing collectively as independent contractors with OptiCare.
Without limiting the generality of the foregoing, neither OptiCare nor any of
its affiliates shall in any particular instance exercise any control or
direction over the medical methods, procedures and practices utilized by the
Professional Corporation and its Medical Staff either in the performance of
their medical duties or in the provision of medical services and care hereunder,
or interfere in the medical judgment of the Medical Staff, or cause the Medical
Staff to do or take any action which would be inconsistent with their
physician-patient responsibilities.
(b) Nothing contained in this Services Agreement shall be construed
to constitute OptiCare as responsible for any professional liability or other
obligations of the Professional Corporation or its Medical Staff
10. COVENANT NOT TO COMPETE.
(a) During the term hereof and for two (2) years after the
termination hereof, the Professional Corporation will not, without the prior
written consent of OptiCare, do any of the following with respect to a
Competitive Business: (a) directly or indirectly engage in, (b) have an interest
in (whether as a proprietor, partner, investor, shareholder, officer, director,
manager or any type of principal whatsoever), (c) enter the employment of, or
act as the agent for, or the advisor or consultant to, or (d) enter into an
agreement to provide ophthalmology or optometry services to or for a Competitive
Business. For purposes of this Section, the term "Competitive Business" shall
mean any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to operate any business
which provides ophthalmology or optometry services, or any business which
competes with the Business as
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<PAGE>
conducted by OptiCare as of the date this Services Agreement terminates, within
the Counties of New Haven, Litchfield, Hartford, Fairfield, Middlesex, New
London, Tolland, or Windham, or otherwise within the State of Connecticut.
(b) The Professional Corporation agrees that OptiCare's remedy at law
for any breach of the covenants set forth in this Section 10 would be inadequate
and agree that in addition to any remedy at law which it may have, OptiCare may
be granted temporary and permanent injunctive relief in any proceeding which may
be brought to enforce this Section 10, without the necessity of proof of actual
damage, and, furthermore, OptiCare may recover all costs and reasonable
attorneys' fees incurred as a result of a breach of the covenants set forth in
Section 10(a).
(c) The Professional Corporation shall include in each Employment
Agreement with the Medical Staff a provision which expressly recognizes the
right of OptiCare to enforce, in its own name and for its own benefit, the
covenants against competition contained therein, and Professional Corporation
shall notify OptiCare promptly and in writing of any breach by any past or
present member of the Medical Staff of a covenant against competition applicable
to such past or present member.
11. TERM.
(a) This Services Agreement shall remain in full force and effect for
a term of five (5) years from the date hereof ("Initial Term") and shall
automatically renew for successive terms of two years each (each such subsequent
two-year term is hereinafter referred to as a "Renewal Term") unless terminated
as provided herein.
(b) Notwithstanding Section 11(a), the facilities usage provided for
in Section 4(a) shall be on a month to month basis, and subject to termination
by either party effective on the last day of a calendar month following delivery
of a written notice of termination received at least thirty (30) days prior to
the effective date of the proposed termination. Following such termination, the
obligation to pay the portion of the Service Charges allocated to facility usage
pursuant to Section 8(a) for subsequent periods shall also terminate; provided
that the payment obligation for facility usage Service Charges for all prior
periods, and all settlements thereof, shall survive until fully discharged.
(c) Either OptiCare or the Professional Corporation may elect to
terminate this Services Agreement by written notice to the other given not less
than one hundred and eighty (180) days and not more than one year prior to the
beginning of the next Renewal Term.
(d) Either OptiCare or the Professional Corporation may terminate
this Services Agreement by written notice to the other, upon the failure by the
other to perform one or more of its obligations under this Services Agreement,
if such failure continues uncorrected for sixty (60) days after receipt of
written notice thereof. Such notice shall describe the specific conduct which
serves as the basis of the alleged breach.
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(e) Upon termination of this Services Agreement, no party shall have
any further liability or obligation to any other hereunder, except for the
obligations under Sections 7, 10 and 12 hereof, and except that each party shall
remain liable to the other with respect to any liability arising prior to such
termination, including, without limitation, liability for the payment of Service
Charges accrued through the date of such termination.
(f) It is the intention of the parties hereto that the service
arrangements provided for herein not represent the provisions of new services or
functions by a health care facility or institution, as defined in section
19a-l54 of the Connecticut General Statutes, or the unlawful practice of
medicine by a corporation, and this Services Agreement shall be construed
accordingly, and the parties shall take such reasonable steps, including
modification of this Services Agreement (other than the substance of the
financial terms hereof) as may be appropriate to implement such intention while
preserving the overall relationships contemplated hereby. If at any time
OptiCare reasonably concludes after consultation with the Professional
Corporation that as constituted, or with modifications, the parties' intention
as aforesaid cannot be implemented, then this Services Agreement shall be
terminable by OptiCare without further liability on ninety (90) days' written
notice to the Professional Corporation, which termination shall render null and
void the covenant not to compete contained in Section 10 of this Services
Agreement.
(g) In the event that OptiCare, following termination of this
Services Agreement, enters into an arrangement with a new professional
corporation or other medical practice entity in substitution for the
Professional Corporation, such new professional corporation or medical practice
entity shall succeed to the custody of all medical records of the Practice, and
Professional Corporation agrees to execute promptly such instruments of
assignment and transfer of the records to the new professional corporation or
other medical practice entity as OptiCare may reasonably request, subject to the
right of the patient to designate to whom his/her medical records should be
transferred
12. PROPRIETARY INTEREST AND RIGHTS OF OPTICARE.
(a) The Professional Corporation recognize the proprietary interest
of OptiCare in the trade name and trademark "OptiCare" and all other names,
trademarks, service marks, policies, procedures, operating manuals, forms,
contracts and other information used or employed by the Business. OptiCare
hereby consents to the use by the Professional Corporation, during the term of
this Services Agreement, of the trade name "OptiCare" in the present form of the
name of the Professional Corporation. The Professional Corporation hereby
acknowledges that it does not have any interest in or to such trade name or the
"OptiCare" trademark, other than the right to use the trade name as expressly
stated above, and shall not use the trade name "OptiCare" in publicly
disseminated materials without the prior approval of OptiCare. Upon the
termination of this Services Agreement, Professional Corporation shall
permanently change its name to delete any reference to OptiCare and to any
confusingly similar name, and shall provide evidence, reasonably satisfactory to
OptiCare, of such change, shall discontinue the use of such trade name,
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the "OptiCare" trademark, and any other names, trade marks, service marks,
policies, procedures, operating manuals, forms, contract or other proprietary
information used in the Business, and shall agree to destroy and/or return to
OptiCare all copies of documents, forms, operating manuals and other materials
displaying such names, trade marks and service marks, or setting forth such
policies, procedures or other proprietary information.
(b) The Professional Corporation acknowledges its confidential
relationship with OptiCare and OptiCare's ownership of all information relating
to the Business, including without limitation, business methods, business plans,
expansion and acquisition plans and strategy, marketing plans, patient and
customer information and lists, statistical data and reports, financial
information relating to the Business, and all quality assurance and utilization
review information (the foregoing collectively referred to as "Confidential
Information"). The Professional Corporation acknowledges and agrees that
OptiCare is entitled to prevent its competitors from obtaining and utilizing its
Confidential Information and that Professional Corporation may be provided
access to the same by OptiCare solely to enable Professional Corporation to
perform the services provided for in this Services Agreement. The Professional
Corporation agrees to hold OptiCare's Confidential Information in strictest
confidence and not to disclose it or allow it to be disclosed directly or
indirectly to any person or entity (other than persons employed by Professional
Corporation who have a need to know such information and who are obligated by
written agreement to maintain the confidentiality thereof) without OptiCare's
prior written consent.
13. RESTRICTIONS ON AUTHORITY OF PROFESSIONAL CORPORATION.
(a) The Professional Corporation shall not, without the prior written
consent of OptiCare, have the authority to:
(i) adopt any annual or long-term capital or operating budget
of the Professional Corporation;
(ii) enter into any contract or commitment the funds for which
are not provided in the operating budget mutually approved
by the Professional Corporation and OptiCare;
(iii) sell, exchange, lease or otherwise dispose of all or
substantially all the assets of the Professional
Corporation;
(iv) merge or consolidate the Professional Corporation with or
into any other entity;
(v) liquidate or dissolve the Professional Corporation; or
10
<PAGE>
(vi) authorize the filing of any receivership, bankruptcy,
insolvency or similar proceeding on behalf of the
Professional Corporation.
(b) The Professional Corporation shall not, without the prior
unanimous written consent of all of the holders of its outstanding capital
stock, have the authority to:
(i) authorize the issuance of any capital stock of the
Professional Corporation or of any options, warrants or
other commitments to issue such capital stock (except as
provided in a stockholders' agreement entered into between
the Professional Corporation and all of its stockholders
in form and substance reasonably acceptable to OptiCare);
or
(ii) amend the Professional Corporation's Certificate of
Incorporation or Bylaws.
14. GENERAL PROVISIONS.
(a) No failure by any party to insist upon the strict performance of
any covenant, agreement, term or condition of this Services Agreement or to
exercise a right or remedy shall constitute a waiver. No waiver of any breach
shall affect or alter this Services Agreement, but each and every covenant,
condition, agreement and term of this Services Agreement shall continue in full
force and effect with respect to any other existing or subsequent breach.
(b) This Services Agreement, together with the Employment Agreements,
constitute the entire agreement between the parties and contains all the
agreements between the parties with respect to the subject matter hereof. This
Services Agreement supersedes any and all prior agreements among the parties,
and all such prior agreements, and any duties and obligations arising
thereunder, are hereby rendered null and void.
(c) The provisions of this Services Agreement may be waived, altered,
amended or supplemented, in whole or in part, only by a writing signed by all of
the parties hereto.
(d) Neither this Services Agreement nor any right or interest
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties, except that OptiCare may assign its rights
or duties under this Services Agreement to a corporation which acquires all or
substantially all of the assets of OptiCare, or with which OptiCare merges or
consolidates.
(e) If any provision of this Services Agreement is held to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Services Agreement that can be given effect without the
invalid provision. In such event, all parties agree that the court making such
determination shall have the power to alter or amend such provision so that it
shall be enforceable consistent with the intentions of the parties.
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(f) This Services Agreement shall be construed and enforced under and
in accordance with the laws of the State of Connecticut.
(g) Nothing in this Services Agreement shall be construed as creating
or giving rise to any rights in any third parties or any persons other than the
parties hereto.
(h) All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, addressed to the party at the following
address:
If to OptiCare:
OptiCare Eye Health Centers, Inc.
87 Grandview Avenue
Waterbury, Connecticut 06708
Attention: President
with a copy to:
Blue Cross & Blue Shield of Connecticut, Inc.
370 Bassett Road
North Haven, Connecticut 06473
Attention: General Counsel
If to Professional Corporation:
OptiCare P.C.
87 Grandview Avenue
Waterbury, Connecticut 06708
Attention: President
Any party may change its address for notice purposes by written notice to the
other party and such change shall be effective upon receipt. Notices shall be
deemed to have been received at the earlier of actual receipt or three (3) days
after deposit in the mail, as provided above.
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IN WITNESS WHEREOF, the parties hereto have caused this Services
Agreement to be executed, as of the date first above written.
OPTICARE EYE HEALTH CENTERS, INC.
By /s/ Dean Yimoyines
----------------------------------
Name Dean Yimoyines
--------------------------------
Its President
---------------------------------
OPTICARE P.C.
By /s/ Dean Yimoyines
----------------------------------
Dean Yimoyines, President
<PAGE>
EXHIBIT A
LOCATIONS
<TABLE>
<CAPTION>
A.S.C. or
MEDICARE
EYE HEALTH VISION QUALIFIED
(MD & TESTING) (OD & OPTICAL) (FACILITY)
-------------- -------------- ----------
<S> <C> <C> <C>
ANSONIA XXXX XXXX
CHESHIRE XXXX XXXX
NAUGATUCK XXXX
NEW HAVEN XXXX XXXX
NEW MILFORD XXXX XXXX
NORWALK XXXX XXXX XXXX
SOUTHBURY (PENDING) XXXX
TORRINGTON XXXX XXXX
WATERBURY XXXX XXXX XXXX
WESTPORT XXXX XXXX
GREENWICH XXXX XXXX
RIDGEFIELD XXXX (PENDING)
BROOKFIELD XXXX
PROSPECT XXXX
(KLEIN & DELUCA)
WATERBURY XXXX
(C.H.C.P.)
LONG WHARF XXXX
WALLINGFORD XXXX
BRIDGEPORT XXXX
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 31, 1999, in Amendment No. 1 to the Registration
Statement (Form S-4 No. 333-78501) and related Prospectus of Saratoga
Resources, Inc. for the Registration of 8,800,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Austin, Texas
June 22, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in Amendment No. 1 of the Registration Statement
(No. 333-78501) of our report dated January 15, 1998 relating to the financial
statements of Saratoga Resources, Inc. for the year ended December 31, 1997 and
to the reference to our Firm under the caption, "Experts", in Amendment No. 1
of the Registration Statement and related Prospectus.
/S/ HEIN & ASSOCIATES LLP
Houston, Texas
June 22, 1999
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to Registration Statement No.
333-78501 of Saratoga Resources, Inc. on Form S-4 of our report relating to the
combined financial statements of OptiCare Eye Health Centers, Inc. and
Affiliate dated March 26, 1999, appearing in the Proxy Statement/Prospectus,
which is part of this Registration Statement and to the reference to us under
the heading "Experts" in such Proxy Statement/Prospectus.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
June 23, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 7, 1999, with respect to the financial
statements of Prime Vision Health, Inc. and subsidiaries included in amendment
number one to the Registration Statement on Form S-4, File
No. 333-78501, and related Proxy Statement/Prospectus of Saratoga Resources,
Inc. for the registration of 8,800,000 shares of its common stock.
/s/ Ernst & Young LLP
Raleigh, North Carolina
June 23, 1999
