<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-15223
OPTICARE HEALTH SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
DELAWARE 76-0453392
<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
87 GRANDVIEW AVENUE, WATERBURY, CONNECTICUT 06708
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code:
(203) 596-2236
Indicate by check X whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, at November 10, 1999 was 8,862,128 shares.
1
<PAGE>
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998 (unaudited) ............. 3
Condensed Consolidated Balance Sheets at September 30, 1999 (unaudited)
and December 31, 1998 ................................................ 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited) ......................... 5
Notes to Condensed Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ................ 16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................................... 16
Item 2. Changes in Securities and Use of Proceeds ................................. 17
Item 4. Submission of Matters to a Vote of Security Holders ....................... 18
Item 5. Other Information ......................................................... 19
Item 6. Exhibits and Reports on Form 8-K .......................................... 19
SIGNATURE .............................................................................. 22
INDEX TO EXHIBITS ...................................................................... 23
</TABLE>
2
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars In Thousands Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES:
Integrated services and product sales $ 17,197 $ 12,781 $ 46,806 $ 38,976
Managed care services 6,356 3,776 16,089 11,188
----------- ----------- ----------- -----------
Total net revenues 23,553 16,557 62,895 50,164
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of product sales 10,044 9,109 31,423 27,627
Medical claims 5,177 2,877 12,904 8,240
Salaries, wages and benefits 4,830 2,428 10,102 7,175
Selling, general and administrative 1,969 1,463 4,449 4,290
Depreciation and amortization 480 330 1,098 981
Interest, net 925 1,454 2,588 3,372
----------- ----------- ----------- -----------
Total operating expenses 23,425 17,661 62,564 51,685
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 128 (1,104) 331 (1,521)
Income tax expense (benefit) 51 (172) 119 (236)
----------- ----------- ----------- -----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 77 (932) 212 (1,285)
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of tax -- 538 -- 851
(Loss) from disposal of discontinued operations,
net of tax -- -- (2,317) --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 77 $ (394) $ (2,105) $ (434)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE (NOTE 3):
Income (loss) from continuing operations
Basic $ 0.01 $ (0.67) $ (0.11) $ (0.84)
=========== =========== =========== ===========
Diluted $ 0.01 $ (0.67) $ (0.11) $ (0.84)
=========== =========== =========== ===========
Net income (loss)
Basic $ 0.01 $ (0.43) $ (0.79) $ (0.46)
=========== =========== =========== ===========
Diluted $ 0.01 $ (0.43) $ (0.79) $ (0.46)
=========== =========== =========== ===========
Weighted average shares outstanding
Basic 5,593,626 2,286,425 3,414,626 2,241,275
=========== =========== =========== ===========
Diluted 6,260,396 2,286,425 3,414,626 2,241,275
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,196 $ 5,956
Accounts receivable, net 11,052 4,571
Inventories 3,294 1,360
Net current assets of discontinued operations -- 5,582
Deferred taxes 6,173 1,499
Other 1,680 1,269
-------- --------
TOTAL CURRENT ASSETS 25,395 20,237
Property and equipment, net 9,911 4,510
Intangible assets, net 29,789 1,356
Deferred taxes 485 123
Other 2,864 330
-------- --------
TOTAL ASSETS $ 68,444 $ 26,556
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,726 $ 3,926
Accrued expenses 11,566 5,776
Current portion of long-term debt 2,923 39,784
Deferred income tax liability -- 1,620
Other 1,112 92
-------- --------
TOTAL CURRENT LIABILITIES 25,327 51,198
Long-term debt, less current portion 34,459 192
Convertible subordinated debentures 4,000 --
Other 322 656
-------- --------
TOTAL LIABILITIES 64,108 52,046
COMMITMENTS AND CONTINGENCIES
Mandatorily Redeemable preferred stock, $.01 par value, 5,000,000
shares authorized, 8,000 shares issued and outstanding -- 9,200
STOCKHOLDERS' EQUITY (DEFICIT):
Series A Convertible Preferred Stock, $.001 par value, 550,000 shares
authorized; 418,803 shares issued and outstanding at September 30,
1999. No shares outstanding at December 31, 1998 1 --
Common Stock, $0.001 par value; 50,000,000 shares authorized;
8,862,128 and 2,325,124 shares outstanding at September 30,
1999 and December 31, 1998, respectively 9 2
Additional paid-in-capital 46,994 5,862
Accumulated deficit (42,668) (40,554)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 4,336 (34,690)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 68,444 $ 26,556
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,105) $ (434)
Less: net income (loss) from discontinued operations (2,317) 851
------- -------
Net income (loss) from continuing operations 212 (1,285)
Adjustments to reconcile net income (loss) from continuing
operations to net cash (used in) provided by operating activities
Depreciation and amortization 1,098 981
Changes in operating assets and liabilities (excluding the effects
of the acquisition of OptiCare)
Accounts receivable (988) (1,878)
Inventories (67) 785
Other current assets 434 232
Other assets (2,360) (49)
Accounts payable and accrued expenses 3,065 2,084
Other current liabilities (600) 1,160
Other liabilities (253) (1,112)
Cash (used in) discontinued operations (1,467) (641)
------- -------
Net cash (used in) provided by operating activities (926) 277
------- -------
INVESTING ACTIVITIES:
Purchases of equipment (860) (360)
Cash acquired in merger 570 --
Cash used for acquisitions and related expenses (4,737) --
------- -------
Net cash (used in) investing activities (5,027) (360)
------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term bank debt 3,274 --
Proceeds from issuance of mandatorily redeemable preferred stock -- 8,000
Payments on long-term bank debt -- (6,000)
Payments on capital lease obligations (81) (104)
------- -------
Net cash provided by financing activities 3,193 1,896
------- -------
Increase (decrease) in cash and cash equivalents (2,760) 1,813
Cash and cash equivalents at beginning of year 5,956 2,478
------- -------
Cash and cash equivalents at end of year $ 3,196 $ 4,291
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,047 $ 2,990
Cash paid for income taxes $ 110 $ 1,616
(See also Note 2)
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of OptiCare Health
Systems, Inc., a Delaware corporation (formerly known as Saratoga Resources,
Inc.), and subsidiaries (the "Company") for the three and nine months ended
September 30, 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 of the Securities
Exchange Act of 1934 and are unaudited. 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 consolidated financial statements have been included. The
results of operations for the three and nine month periods ended September 30,
1999 are not necessarily indicative of the results to be expected for the full
year. The condensed consolidated balance sheet as of December 31, 1998 was
derived from the Company's audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
The Company's shareholders approved an amendment to its Articles of
Incorporation changing, among other things, the Company's name to OptiCare
Health Systems, Inc., effective August 13, 1999.
2. THE MERGERS
On August 13, 1999 Saratoga Resources, Inc. ("Saratoga"), a Delaware
corporation, PrimeVision Health, Inc. ("Prime") and OptiCare Eye Health Centers,
Inc. ("OptiCare") merged (the "Mergers"). In this transaction Prime merged with
Saratoga through a reverse acquisition by Prime of Saratoga (the "Prime Merger")
whereby Prime has acquired Saratoga at book value with no purchase accounting
adjustments. Upon consummation of the Prime Merger, each share of Prime common
stock was converted into the right to receive 0.3138 shares of Common Stock of
the Company. Immediately following the Prime Merger, OptiCare was acquired by
Prime (the "OptiCare Merger"). Upon consummation of the OptiCare Merger, each
share of OptiCare capital stock was converted into the right to receive 11.7364
shares of Common Stock of the Company. The OptiCare merger was accounted for
under the purchase method of accounting, whereby the purchase price has been
allocated to preliminarily estimated fair value of the tangible and identifiable
intangible assets acquired and liabilities assumed. The excess of the aggregate
purchase price of $26.9 million over the estimated fair value of the net assets
acquired, based on a preliminary allocation, was approximately $21.7 million. Of
this excess, $17.7 million has been recorded as goodwill and is being amortized
on a straight-line basis over 25 years and $4.0 million has been used to
eliminate the valuation allowance related to Prime's deferred tax assets. In
addition, the company recorded an intangible asset of $7.1 million in connection
with a new administrative services agreement that is being amortized over 25
years. Fair values are based on valuations and other studies that are
substantially complete. The Company does not expect that the effect of any final
adjustments based upon the completion of such valuations and studies will result
in any material adjustments to the purchase allocations.
In connection with the merger, all of Prime's mandatorily redeemable
preferred stock was converted into $2.0 million of subordinated long term debt;
$4.0 million of convertible subordinated long term debt and approximately 2.0
million shares of common stock.
For accounting purposes, Prime is the accounting acquirer and the surviving
accounting entity. Accordingly, the operating results of OptiCare have been
included in the accompanying consolidated financial statements since September
1, 1999, the deemed effective date of the acquisition for accounting purposes.
The impact of results from August 13, 1999 through August 31, 1999 are not
material to the consolidated financial statements.
6
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following is a summary of the pro forma results of the Company as if
the Mergers had closed effective January 1, of the respective periods:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------------- -----------------
(Amounts in thousands, except share data)
<S> <C> <C>
Net Revenues $ 96,398 $ 78,092
Income (loss) from continuing operations (862) (1,951)
Net income (loss) (3,179) (1,100)
Income (loss) per common share from continuing operations:
Basic $ (0.10) $ (0.22)
Diluted $ (0.10) $ (0.22)
Net income (loss) per common share:
Basic $ (0.36) $ (0.12)
Diluted $ (0.36) $ (0.12)
</TABLE>
Pro forma data may not be indicative of the results that would have been
obtained had these events actually occurred at the beginning of the periods
presented, nor does it intend to be a projection of future results.
7
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - EARNINGS PER COMMON SHARE
The following tables sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Amounts In Thousands Except Share Information)
<S> <C> <C> <C> <C>
Income (loss) from continuing operations
applicable to common stockholders:
Income (loss) from continuing operations $ 77 $ (932) $ 212 $ (1,285)
Preferred stock dividend (600) (600) (600)
---------- ---------- ---------- ----------
Income (loss) from continuing operations applicable
to common stockholders $ 77 $ (1,532) $ (388) $ (1,885)
========== ========== ========== ==========
Net income (loss) applicable to common stockholders:
Net income (loss) $ 77 $ (394) $ (2,105) $ (434)
Preferred stock dividend (600) (600) (600)
---------- ---------- ---------- ----------
$ 77 $ (994) $ (2,705) $ (1,034)
========== ========== ========== ==========
Income (loss) per common share from continuing operations:
Basic $ 0.01 $ (0.67) $ (0.11) $ (0.84)
========== ========== ========== ==========
Diluted $ 0.01 $ (0.67) $ (0.11) $ (0.84)
========== ========== ========== ==========
Net income (loss) per common share:
Basic $ 0.01 $ (0.43) $ (0.79) $ (0.46)
========== ========== ========== ==========
Diluted $ 0.01 $ (0.43) $ (0.79) $ (0.46)
========== ========== ========== ==========
Weighted average common shares-basic 5,593,626 2,286,425 3,414,626 2,241,275
Effect of dilutive securities:
Preferred stock 204,849 * * *
Options 331,364 * * *
Warrants 130,557 * * *
---------- ---------- ---------- ----------
Weighted average common shares-diluted 6,260,396 2,286,425 3,414,626 2,241,275
========== ========== ========== ==========
</TABLE>
* Anti-dilutive
The weighted average common shares outstanding for all periods prior to the
merger have been adjusted to reflect the conversion associated with the reverse
merger with Saratoga. In addition, the effect of dilutive securities excludes
the assumed conversion of convertible debt due to anti-dilution.
8
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - DISCONTINUED OPERATIONS
In December 1998, Prime began the process of discontinuing its
ophthalmology operations and recorded a loss on the disposal of these
discontinued operations. The disposal of these operations continued in 1999
through the cancellation of the administrative service agreements with
affiliated ophthalmologists and the repurchase of practice assets by the
physicians. During the three months ended June 30, 1999 the Company revised its
estimate of loss on the disposal of its ophthalmology operations and accordingly
recorded an additional loss on the disposal of $2,529,000, net of tax of
$212,000. As of September 30, 1999 the disposal of these operations is
substantially complete.
NOTE 5 - SEGMENT INFORMATION
The Company manages the operations of the business through two operating
segments: (1) integrated services and product sales and (2) managed care
services. The integrated services and product sales segment includes a range of
services rendered to licensed practitioners of ophthalmology and optometry,
including the development and marketing of laser vision correction centers, eye
health systems and software, a buying group and other services. In addition,
this segment provides services to eye care patients, including the operation of
integrated eye health centers and retail optical stores. The managed care
segment provides a range of administrative, network management and related
services to health maintenance organizations and other health care entities.
Management assesses the performance of its segments based on income before
income taxes, interest expense, depreciation and amortization, and other
corporate overhead. Summarized financial information, by segment, for the three
months and nine months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------------- ------------- -------------- -------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenues:
Integrated services and products $ 17,197 $ 12,781 $ 46,806 $ 38,976
Managed Care 6,526 3,776 16,259 11,188
-------------- ------------- -------------- -------------
Segment totals 23,723 16,557 63,065 50,164
Elimination of inter-segment
revenues (170) (170)
-------------- ------------- -------------- -------------
Total net Revenue $ 23,553 $ 16,557 $ 62,895 $ 50,164
============== ============= ============== =============
Operating earnings (loss)
Integrated services and products $ 1,736 $ 681 $ 3,725 $ 2,541
Managed Care 426 263 1,047 1,084
-------------- ------------- -------------- -------------
Segment totals 2,162 944 4,772 3,625
Depreciation and Amortization (480) (330) (2,588) (981)
Interest Expense (925) (1,454) (1,098) (3,372)
Corporate (629) (264) (755) (793)
============== ============= ============== =============
Operating earnings (loss) from
continuing operations $ 128 $ (1,104) $ 331 $ (1,521)
============== ============= ============== =============
</TABLE>
9
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 - CREDIT FACILITY
In August 1999, in connection with the Mergers, the Company entered into a
credit agreement (the "Credit Facility") with Bank Austria. The Credit Facility
was entered into for the purpose of facilitating the Mergers, to pay certain
indebtedness of Prime and OptiCare and to provide working capital. The Credit
Facility provides the Company with a $21.5 million term loan and up to a $12.7
million revolving credit facility and is secured by a security interest in
substantially all of the assets of the Company. The Company is required to
maintain certain financial ratios, which are to be calculated on a quarterly and
annual basis beginning on December 31, 1999. The first principal payment on the
term loan is April 1, 2000 and the Credit Facility terminates and all amounts
outstanding thereunder are due and payable on June 1, 2004. At September 30,
1999, the Company had amounts outstanding of $29.9 million under the Credit
Facility.
The interest rate applicable to the Credit Facility will equal the base
rate or the eurodollar rate (each, as defined in the loan agreement with Bank
Austria ("Loan Agreement")), as the Company may from time to time elect, in
accordance with the provisions of the Loan Agreement. The base rate will
generally be the higher of (a) the prime rate of Bank Austria for domestic
commercial loans in effect on such applicable day or (b) the federal funds rate
in effect on such applicable day plus one-half of one percent (1/2 of 1%) which
generally equals LIBOR plus 2.25%. The eurodollar rate will generally equal the
offered rate quoted by Bank Austria in the interbank eurodollar market for U.S.
dollar deposits of an aggregate amount comparable to the principal amount of the
eurodollar loan to which the quoted rate is to be applicable.
NOTE 7 - CONTINGENCIES
The Company is both a plaintiff and defendant in lawsuits incidental to its
current and former operations. Management is of the opinion that, although there
can be no assurance as to the ultimate disposition of these matters, the
ultimate resolution of these matters will not have a material adverse effect on
the results of operations and the financial condition of the Company.
NOTE 8 - SUBSEQUENT EVENTS
In October 1999, the Company signed a letter of intent with ConnectiCare,
Inc. to provide medical/surgical managed care services as well as routine eye
care coverage to its 215,000 commercial and Medicare members.
10
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and management's
discussion and analysis contained in the Company's Registration Statement on
Form S-4 (Registration No. 333-78501), as filed with the Securities and Exchange
Commission.
OVERVIEW. OptiCare Health Systems, Inc. (the "Company") is an integrated
eye care services company that delivers a range of services and systems for eye
health professionals, consumers, including laser vision correction, and managed
care plans. On August 13, 1999 Saratoga Resources, Inc. ("Saratoga"), a Delaware
corporation, PrimeVision Health, Inc. ("Prime") and OptiCare Eye Health Centers,
Inc. ("OptiCare") merged (the "Mergers") pursuant to the terms of an Agreement
and Plan of Merger dated as of April 12, 1999. In this transaction Prime merged
with Saratoga through a reverse acquisition by Prime of Saratoga at book value
with no adjustments reflected to historical values. Immediately following the
Prime Merger, OptiCare was acquired by Saratoga, which was accounted for under
the purchase method of accounting with the excess of purchase price over the
estimated fair value of net assets acquired recorded as goodwill. In reporting
financial results for the three months and nine months ended September 30, 1999,
the month of September is based upon consolidated operating results reported by
the Company and its subsidiaries, including OptiCare, and the months prior to
that are based solely upon the results reported by Prime and its subsidiaries.
The Company's shareholders approved an amendment to its Articles of
Incorporation changing, among other things, the Company's name to OptiCare
Health Systems, Inc., effective August 13, 1999.
For accounting purposes, Prime was the accounting acquirer and the
surviving accounting entity. Accordingly, the operating results of OptiCare have
been included in the accompanying consolidated financial statements since
September 1, 1999, the deemed effective date of the acquisition for accounting
purposes. The impact of results from August 13, 1999 through August 31, 1999 are
deemed immaterial to the consolidated financial statements. The excess of the
aggregate purchase price of $26.9 million over the estimated fair value of the
net assets acquired, based on a preliminary allocation, was approximately $21.7
million. Of this excess $17.7 million has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years and $4.0 million has been used
to eliminate the valuation allowance related to Prime's deferred tax assets. In
addition, the company recorded an intangible asset of $7.1 million in connection
with a new administrative services agreement that is being amortized over 25
years.
The Company executes its business through two business segments: (1)
integrated services and product sales and (2) managed care services. The
integrated services and product sales segment includes a range of services
rendered to licensed practitioners of ophthalmology and optometry, including the
development and marketing of laser vision correction centers, selling of eye
health systems and software, and a buying group program for optical products. In
addition, this segment operates integrated eye health centers in Connecticut and
owns and operates retail optical stores in Connecticut and North Carolina. The
managed care segment provides a range of administrative, network management and
related services to health maintenance organizations and other health care
entities.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Integrated services and product sales net revenue. Net revenues for
integrated services and product sales increased to $17.2 million for the three
months ended September 30, 1999 from $12.8 million for the three months ended
September 30, 1998, an increase of $4.4 million or 34.4%. Of this increase $3.1
million represents optometry and ophthalmology revenue of OptiCare for the month
of September 1999 which, in connection with the merger with OptiCare in August
1999, have been included in the September 1999 quarterly operations of the
Company. In addition, the Company recorded approximately $0.6 million of revenue
for the three months ended September 30, 1999 from the Company's Health Services
Organization ("HSO") service agreements with a number of ophthalmology
practices. No HSO revenue was recorded in 1998. The remaining increase is
attributable to growth in the optometry and retail areas, partially offset by
reductions in the rate of reimbursement from governmental and commercial payors.
11
<PAGE>
Managed care net revenue. Managed care net revenue increased to $6.4
million for the three months ended September 30, 1999 from $3.8 million for the
three months ended September 30, 1998, an increase of $2.6 million or 68.4%. Of
this increase, $1.0 million represents managed care revenue of OptiCare for the
month of September 1999. The remaining increase primarily reflects the addition
of new managed care contracts and growth in the number of member lives under
existing contracts.
Cost of product sales. Cost of sales increased to $10.0 million for the
three months ended September 30, 1999 from $9.1 million for the three months
ended September 30, 1998, an increase of $0.9 million or 9.9%. Of this increase
$0.5 million represents cost of sales of OptiCare for the month of September
1999. The remaining increase is consistent with the growth in revenues related
to eye health services and product sales.
Medical claims. Medical claims expenses increased to $5.2 million for the
three months ended September 30, 1999 from $2.9 million for the three months
ended September 30, 1998, an increase of $2.3 million or 79.3%. Of this
increase, $0.7 million represents managed care claims expenses of OptiCare for
the month of September 1999. The remaining increase primarily results from
increased claims costs associated with new managed care contracts, the growth in
the number of member lives under existing managed care contracts and an increase
in claim costs under certain existing managed care contracts. Claim costs have
remained relatively stable over the comparison period on a majority of existing
managed care contracts. This increase is consistent with the increase in managed
care revenues.
Salaries, wages and benefits. Salaries, wages and benefits increased to
$4.8 million for the three months ended September 30, 1999 from $2.4 million for
the three months ended September 30, 1998, an increase of $2.4 million or 100%.
This increase primarily represents $2.0 million of compensation expenses of
OptiCare for the month of September. The remaining increase is attributed to
increased employee costs to support growth in the Company's managed care
operations.
Selling, general and administrative ("SG&A"). SG&A expenses include the
costs necessary to sell and distribute the Company's services and products and
the general and administrative costs of managing the business, including
facility expenses, marketing, insurance, professional fees and bad debts. SG&A
increased $0.5 million or 33.3%, from $1.5 million for the three months ended
September 30, 1998 to $2.0 million for the three months ended September 30,
1999. This increase is primarily the result of including $0.7 million of general
and administrative expenses of OptiCare for the month of September 1999.
Depreciation and amortization. Depreciation and amortization increased $0.2
million from $0.3 million for the three months ended September 30, 1998 to $0.5
million for the three months ended September 30, 1999. This increase is the
result of the merger and related goodwill amortization.
Interest expense. Interest expense decreased to $0.9 million for the three
months ended September 30, 1999 from $1.5 million for the three months ended
September 30, 1998, a decrease of $0.6 million or 40.0%. Interest expense
primarily relates to the Company's bank indebtedness and notes payable to
sellers in connection with acquisition activities. The decrease in interest
expense primarily results from the reduction in the Company's outstanding bank
debt and reduced interest rates associated with the Mergers in August 1999 and
the reduction in the seller notes payable in connection with the discontinuation
of Prime's ophthalmology division in December 1998.
Income (loss) from continuing operations before income taxes. Income from
continuing operations before income taxes increased to $0.1 million for the
three months ended September 30, 1999 from a loss of $1.1 million for the three
months ended September 30, 1998, an increase of $1.2 million or 109.1%. This
increase was primarily attributable to revenue growth and the reduction of
interest expense as described above.
Discontinued operations, net of tax. Discontinued operations represent the
income from Prime's ophthalmology division which management elected to dispose
of on December 15, 1998. Income from discontinued operations for the three
months ended September 30, 1998 was $0.5 million.
12
<PAGE>
Net Income (loss). The Company had net income of $0.1 million for the three
months ended September 30, 1999 compared to a net loss of $(0.4) for the three
months ended September 30, 1998, an increase of $0.5 million or 125%. This
increase was the result of an increase in continuing operations of $1.2 million
and is offset by an increase in income tax expense of $0.2 million and a
decrease in income from discontinued operations of $0.5 million.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Integrated services and product sales net revenue. Integrated services and
product sales revenue increased to $46.8 million for the nine months ended
September 30, 1999 from $39.0 million for the nine months ended September 30,
1998, an increase of $7.8 million or 20.0%. Of this increase $3.1 million
represents optometry and ophthalmology revenue of OptiCare for the month of
September 1999 which, in connection with the merger with OptiCare in August
1999, have been included in the revenue of the Company in 1999. In addition, the
Company recorded approximately $0.9 million of revenue in 1999 from HSO service
agreements. No HSO revenue was recorded in 1998. The increase is also a result
of growth in revenue from the buying group that increased from $23.7 million for
the nine months ended September 30, 1998 to $25.0 million for the nine months
ended September 30, 1999. The remaining increase is attributable to growth in
the optometry and retail areas, partially offset by reductions in the rate of
reimbursement from governmental and commercial payors.
Managed care net revenue. Managed care net revenue increased to $16.1
million for the nine months ended September 30, 1999 from $11.2 million for the
nine months ended September 30, 1998, an increase of $4.9 million or 43.8%. Of
this increase, $1.0 million represents managed care revenue of OptiCare for the
month of September 1999. The remaining increase is due to new managed care
contracts and growth in existing member lives.
Cost of product sales. Cost of Sales increased to $31.4 million for the
nine months ended September 30, 1999 from $27.6 million for the nine months
ended September 30, 1998, an increase of $3.8 million or 13.8 % This increase is
primarily due to growth in the buying group and is consistent with the increase
in net revenues for integrated services and product sales.
Medical claims. Medical claims increased to $12.9 million for the nine
months ended September 30, 1999 from $8.2 million for the nine months ended
September 30, 1998, an increase of $4.7 million or 57.3%. This increase is
primarily due to new managed care contracts and growth in existing member lives
and is consistent with the increase in managed care revenues. The remaining
increase of $0.7 million represents managed care claims expenses of OptiCare for
the month of September 1999.
Salaries wages & benefits. Salaries, wages and benefits increased to $10.1
million for the nine months ended September 30, 1999 from $7.2 million for the
nine months ended September 30, 1998, an increase of $2.9 million or 40.3%. Of
this increase $2.0 million represents compensation expenses of OptiCare for the
month of September. The remaining increase represents increased employee costs
associated with servicing increased managed care contracts.
Selling, general and administrative. SG&A remained relatively unchanged at
$4.4 million for the nine months ended September 30, 1999 as compared to $4.3
million for the same period in 1998.
Depreciation and amortization. Depreciation and amortization increased to
$1.1 million for the nine months ended September 30, 1999 compared to $1.0
million for the nine months ended September 30, 1998, an increase of $0.1
million or 10.0%. This increase is the result of the merger and related goodwill
amortization.
Interest Expense. Interest expense decreased to $2.6 million for the nine
months ended September 30, 1999 from $3.4 million for the nine months ended
September 30, 1998, a decrease of $0.8 million or 23.5%. Interest expense
primarily relates to the Company's bank indebtedness and notes payable to
sellers in connection with acquisition activities. The decrease in interest
expense is primarily due to the reduction in the Company's outstanding bank debt
and related interest rates associated with the mergers in August 1999 and the
reduction in the seller notes payable in connection with the disposal of Prime's
ophthalmology division in December 1998.
13
<PAGE>
Income (loss) from continuing operations before income taxes. Income from
continuing operations before income taxes increased to $0.3 million for the nine
months ended September 30, 1999 from a loss of $(1.5) million for the nine
months ended September 30, 1998, an increase of $1.9 million or 126.7%. This
increase was primarily attributed to revenue growth and the reduction of
interest expense as described above.
Discontinued operations, net of tax. Discontinued operations represent the
income from Prime's ophthalmology division. Income from discontinued operations
for the nine months ended September 30, 1998 was $0.9 million. Discontinued
operations for the nine months ended September 30, 1999 includes an additional
loss on disposal of $2.3 million that represents the Company's revised estimate
of loss.
Net Income (loss). The Company had a net loss of $(2.1) million for the
nine months ended September 30, 1999 compared to a net loss of $(0.4) for the
nine months ended September 30, 1998, an increase in loss of $1.7 million. This
change was the result of an increase in continuing operations of $1.8 million
and was offset by an increase in income tax expense of $0.4 million and an
increase in loss from discontinued operations of $3.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from cash flows generated
from operations and from borrowing under the Company's credit facility. The
Company's principal uses of liquidity are to provide working capital, meet debt
service requirements and finance the Company's strategic plans. As of September
30, 1999, the Company had cash and cash equivalents of approximately $3.2
million and $4.3 million of additional borrowing capacity available under its
revolving credit facility.
In August 1999, in connection with the Mergers, the Company entered into a
credit agreement (the "Credit Facility") with Bank Austria. Proceeds from the
Credit Facility were used to pay certain indebtedness of Prime and OptiCare and
to fund the Company's business operations. The Credit Facility provides the
Company with a $21.5 million term loan and up to a $12.7 million revolving
credit facility and is secured by a security interest in substantially all of
the assets of the Company. The Company is required to maintain certain financial
ratios, which are to be calculated on a quarterly and annual basis beginning on
December 31, 1999. In the event of default of the financial covenants, the bank
could foreclose on its security interest in the Company's assets, which could
have a material adverse effect on the results and financial position of the
Company. The first principal payment on the term loan is April 1, 2000 and the
Credit Facility terminates and all amounts outstanding thereunder are due and
payable on June 1, 2004. At September 30, 1999, the Company had advances
outstanding of $29.9 million under the Credit Facility.
The interest rate applicable to the Credit Facility will equal the base
rate or the eurodollar rate (each, as defined in the loan agreement with Bank
Austria ("Loan Agreement")), as the Company may from time to time elect, in
accordance with the provisions of the Loan Agreement. The base rate will
generally be the higher of (a) the prime rate of Bank Austria for domestic
commercial loans in effect on such applicable day or (b) the federal funds rate
in effect on such applicable day plus one-half of one percent (1/2 of 1%), which
generally equals LIBOR plus 2.25%. The eurodollar rate will generally equal the
offered rate quoted by Bank Austria in the inter-bank eurodollar market for U.S.
dollar deposits of an aggregate amount comparable to the principal amount of the
eurodollar loan to which the quoted rate is to be applicable.
For the nine months ended September 30, 1999 the Company used $0.9 million
in operating activities and $5.0 million in investing activities while financing
activities provided cash of $3.2 million. Cash used in operating activities
included $1.5 million of discontinued operations partially offset by a non-cash
charge of $1.1 million of depreciation and amortization. Cash used in investing
activities consisted of $4.7 million of merger related transactions. Net cash
provided from financing activities primarily consisted of $3.3 million of
borrowings under the Company's revolving credit facility.
For the nine months ended September 30, 1998 the Company generated $0.3
million in operating activities and $1.9 million in financing activities while
investing activities used cash of $0.4 million. Cash from operating activities
represents a $1.3 million net loss from continuing operations, a non-cash charge
of $1.0 million of depreciation and amortization, an increase in accounts
receivable and decreases in inventory, accounts payable and accrued expenses.
Net cash provided from financing activities consisted of $8.0 million from the
issuance of mandatorily redeemable preferred stock that is partially offset by
the repayment of $6.0 million of bank indebtedness. Cash used in investing
activities consisted of $0.4 million of capital expenditures.
Under agreements with the North Carolina and Texas Departments of
Insurance, the Company is required to maintain restricted investments of $25,000
and $500,000 on behalf of these respective regulatory bodies. In addition, the
Company is not to dividend or otherwise transfer any funds from its limited
purpose health maintenance organization in Texas without prior approval from the
Department of Insurance. The North Carolina Department of Insurance also places
restrictions on dividends. The Company does not believe these requirements will
have a material impact on liquidity.
Management believes that the combination of funds expected to be provided
by its operations and credit facility will be sufficient to meet is current and
anticipated funding needs for the next twelve months. The Company may incur
additional indebtedness and may issue notes or equity securities, in public or
private transactions, in order to fund future acquisitions, capital expenditure
and working capital requirements.
14
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Company is subject to pre-determined Medicare reimbursement rates
which, for certain products and services, have decreased over the past three
years. A decrease in Medicare reimbursement rates could have an adverse affect
on the Company'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 the
Company's non-Medicare business is also affected by changes in Medicare
reimbursement rates.
Management believes that inflation has not had a material effect on the
Company's revenues for the three and nine month periods ended September 30, 1999
and 1998.
YEAR 2000
The Company 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
or leased office space. The Company is devoting the necessary internal and
external resources to replace, upgrade or modify any significant systems that do
not correctly identify the Year 2000. Substantially all necessary modifications
and testing of the Company's significant systems have been completed. It is
anticipated that the remaining non-compliant systems will be upgraded by the
middle of December.
All of the Company's critical and non-critical systems are anticipated to
be Year 2000 compliant by the middle of December 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.
The Company is also considering the potential impact of Year 2000 problems
with other entities with which the Company 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.
The Company believes its greatest risk related to the Year 2000 involves
the potential inability of external entities, with which the Company transacts
business, to be Year 2000 compliant. Since the Company relies on certain
external entities, in particular, third party commercial and governmental
payors, for a considerable portion of its revenues, a significant failure of
these parties in maintaining payments could materially adverse impact on the
Company's operations.
As of September 30, 1999, the Company has not incurred any external cost
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 the Company's aggressive
strategy to maintain state of the art technology. As a result, the Company
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 the Company's combined financial
statements and the Company does not expect Year 2000 issues to have a material
adverse effect on its results of operations, liquidity or financial condition.
15
<PAGE>
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q and elsewhere (such as in other
filings by the Company with the Securities and Exchange Commission, press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
include those relating to future opportunities, the outlook of customers, the
reception of new services, technologies and pricing methods, resolution of the
Year 2000 Issue, existing and potential strategic alliances, development and
execution of an e-commerce strategy, the success of initiatives including
opening laser vision correction centers and the likelihood of incremental
revenues offsetting expense related to those new initiatives. In addition, such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results expressed or
implied by such forward-looking statements. Such factors include: changes in the
regulatory environment applicable to the Company's business, demand and
competition for the Company's products and services, general economic
conditions, risks related to the eye care industry, the Company's ability to
successfully integrate and profitably operate its operations, and other risks
detailed from time to time in the Company's periodic earnings releases and
reports filed with the Securities and Exchange Commission, as well as the risks
and uncertainties discussed in this Form 10-Q. The Company undertakes no
obligation to publicly update or revise forward looking statements to reflect
events or circumstances after the date of this Form 10-Q or to reflect the
occurrence of unanticipated events.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in interest rates
based on its financing activities under its Credit Facility. The nature and
amount of the Company's indebtedness may vary as a result of future business
requirements, market conditions and other factors. The extent of the Company's
interest rate risk is not quantifiable or predictable due to the variability of
future interest rates and financing needs. The Company does not expect changes
in interest rates to have a material effect on income or cash flows in 1999,
although there can be no assurances that interest rates will not significantly
change. The Company did not use derivative instruments to adjust the Company's
interest rate risk profile during the nine months ended September 30, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Maryland Action and Counterclaim. As disclosed in the Company's
registration statement on Form S-4 (the "Registration Statement"), which was
declared effective July 30, 1999, one of the Company's subsidiaries, PrimeVision
Health, Inc. ("Prime"), commenced an action (the "Maryland Action") in United
States District Court in Maryland, in January 1999, with a Maryland
ophthalmology practice and its stockholders (the "Maryland Sellers"). Prime
sought damages in this action for the refusal of the Maryland Sellers to honor
certain terms of an administrative services agreement they made with Prime.
Prime had 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 counterclaimed against Prime and others alleging the
administrative services agreement was unenforceable, and they refused to pay
fees and other moneys owed to Prime under the terms of the administrative
services agreement. The Maryland Action was settled on October 21, 1999 and the
parties agreed to voluntarily dismiss the lawsuit with prejudice in exchange for
a combination of cash and Prime Common Stock, which do not collectively have a
material impact to the Company's financial position.
16
<PAGE>
Tennessee Action and Counterclaim. As disclosed in the Registration
Statement, Prime commenced an action (the "Tennessee Action") in the 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 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 counterclaimed
against Prime and others, alleging that the administrative services agreement is
unenforceable, and they refused to pay fees and other moneys owed to Prime under
the terms of the administrative services agreement. The Tennessee Action has
been settled and the lawsuit was voluntarily dismissed with prejudice on
September 7, 1999 in exchange for a combination of cash and Prime Common Stock,
which do not collectively have a material impact to the Company's financial
position.
North Carolina Action. In June, 1999, a North Carolina ophthalmology
practice and its stockholders (the "North Carolina Sellers") commenced an action
(the "North Carolina 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 claimed,
among other things, that the administrative services agreement was fraudulently
induced, that all fees paid under the administrative services agreement 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 North Carolina Action has been
settled and the lawsuit was dismissed with prejudice on September 8, 1999 in
exchange for, among other things, a combination of cash and Prime Common Stock,
which do not collectively have a material impact to the Company's financial
position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Described below is information regarding all securities that have been sold
by the Company during the third quarter ended September 30, 1999 that were not
registered under the Securities Act.
On or about August 13, 1999, in connection with the closing of the mergers,
the Company approved options to purchase 631,367 shares of Common Stock of the
Company under the Performance Stock Program, at an average exercise price of
$5.44 per share, in replacement of options previously granted by each of
PrimeVision Health, Inc. and OptiCare Eye Health Centers, Inc..
On or about August 13, 1999, the Company granted options to purchase
721,250 shares of Common Stock of the Company under the Performance Stock
Program, at an average exercise price of $5.85 per share.
17
<PAGE>
On August 13, 1999 in connection with the Company entering into a credit
facility, the Company issued to Bank Austria Creditanstalt Corporate Finance,
Inc. (i) 418,803 shares of the Series A Convertible Preferred Stock upon
conversion by the bank of debt in the amount of $2,450,000, and (ii) as a
financing fee, 100,000 warrants (the "Warrants") to purchase, at an exercise
price of $5.85 per warrant, 100,000 shares of (A) Common Stock or (B) Series A
Convertible Preferred Stock, or (C) a combination of Common Stock and Series A
Convertible Preferred Stock aggregating 100,000 shares.
On August 13, 1999, in connection with the mergers, the Company issued a
convertible promissory note in the aggregate principal amount of $4,000,000 to
Marlin Capital, L.P. in exchange for, among other things, the cancellation of
4,000 shares of Preferred Stock of PrimeVision Health, Inc. The note is
convertible into the Company's Common Stock after August 13, 2000 at a
conversion price which is the greater of (x) the closing market price on the
first trading day after the mergers or (y) 90% of the average closing price of
the Company's Common Stock twenty trading days prior to conversion.
On October 1, 1999, the Company entered into a stock purchase agreement
with Stephen Cohen, Robert Airola, Gerald Mandel and Reginald Westbrook.
Pursuant to the agreement, the Company acquired all of the issued outstanding
shares of capital stock of Cohen Systems, Inc. d/b/a/ CC Systems, Inc. in
exchange for, among other things, a base purchase price comprised of 110,000
shares of Common Stock and $750,000, in the form of installment payments over a
two year period and a promissory note.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof. No underwriter was engaged in connection with
the foregoing sales of securities. The Company has reason to believe that (i)
all of the foregoing purchasers were familiar with or had access to information
concerning the operations and financial conditions of the Company, (ii) all of
those individuals purchasing securities represented that they acquired the
shares for investment and not with a view to the distribution thereof, and (iii)
other than with respect to the options, that the foregoing purchasers are
accredited investors within the meaning of Regulation D promulgated under the
Securities Act. At the time of issuance, all of the foregoing securities of the
Company's Common Stock were deemed to be restricted securities for purposes of
the Securities Act and the certificates representing such securities bore or
will bear legends to that effect.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held a special meeting of stockholders on August 10, 1999. Of
the 3,465,292 shares of Common Stock entitled to vote at the meeting, 2,220,446
shares of Common Stock were present in person or by proxy and entitled to vote.
Such number of shares represented approximately 64% of the Company's outstanding
shares of Common Stock.
At the special meeting, the stockholders of the Company approved of the
following matters:
(1) the election of each of Ian G.H. Ashken, Allan L.M. Barker, John F.
Croweak, Steven L. Ditman, David A. Durfee, Martin E. Franklin and
Dean J. Yimoyines as members of the Board of Directors of the Company;
(2) a reverse split in which each share of common stock has been converted
into 0.06493 shares of Common stock;
(3) the change of the name of the Company to "OptiCare Health Systems,
Inc.";
(4) the amendment of the certificate of incorporation with respect to
indemnification of officers and directors of the Company;
(5) the adoption of a performance stock program; and
(6) the adoption of an employee stock purchase program.
18
<PAGE>
At the meeting, the Company's stockholders approved each of the foregoing
proposals. All 2,220,446 votes cast at the meeting were voted for each of Ian
G.H. Ashken, Allan L.M. Barker, John F. Croweak, Steven L. Ditman, David A.
Durfee, Martin E. Franklin and Dean J. Yimoyines. In addition, there were
2,220,446 votes in favor of the other proposals, no votes against and no
abstentions in connection with any such proposals.
ITEM 5. OTHER INFORMATION.
On October 1, 1999 the Company entered into a stock purchase agreement
among the Company, Stephen Cohen, Robert Airola, Gerald Mandel and Reginald
Westbrook, pursuant to which the Company acquired all the issued and outstanding
shares of capital stock of Cohen Systems, d/b/a CC Systems. Cohen Systems, Inc.
is a software systems provider specializing in point-of-sale and Internet-based
solutions for optical retail and optical manufacturing laboratories.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
The following Exhibits are filed as part of this Quarterly Report on Form
10-Q:
Number Exhibit
3.1 Certificate of Incorporation of the Company, incorporated by reference
to Exhibit 3.1 of the Form 10-KSB filed February 3, 1995.
3.2 Certificate of Amendment of the Certificate of Incorporation, dated as
of August 13, 1999, incorporated by reference to Exhibit 3.1 of the
Current Report on Form 8-K filed August 30, 1999 (the "Form 8-K").
3.3 Certificate of Designation with respect to the Company's Series A
Convertible Preferred Stock, as filed with the Delaware Department of
State on August 13, 1999, incorporated by reference to Exhibit 3.2 of
the Form 8-K.
4.1 Warrant dated as of August 13, 1999 between the Company and Bank
Austria Creditanstalt Corporate Finance, Inc., incorporated by
reference to Exhibit 3.3 of the Form 8-K.
4.2 Form of Performance Stock Program, incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-4,
Registration No. 333-78501, as amended, first filed on May 14, 1999,
and Annex C thereof (the "Registration Statement"). *
10.1 Agreement and Plan of Merger, dated as of April 12, 1999, among
Saratoga Resources, Inc., OptiCare Shellco Merger Corporation,
PrimeVision Shellco Merger Corporation, OptiCare Eye Health Centers,
Inc. and PrimeVision Health, Inc., incorporated by reference to
Exhibit 2 of the Registration Statement.
10.2 Amended and Restated Loan and Security Agreement, dated as of
August 13, 1999, among Consolidated Eye Care, Inc., OptiCare Eye
Health Centers, Inc., and PrimeVision, Health, Inc., as Borrowers,
OptiCare Health Systems, Inc., as the Parent, the lenders named
therein (the "Lenders"), Bank Austria, AG, as the LC Issuer (the "LC
Issuier), and Bank Austria Creditanstalt Corporate Finance, Inc., as
the agent (the "Agent") (excluding schedules and other attachments
thereto), incorporated by reference to Exhibit 10.1 of the Form 8-K.
10.3 Guaranty, dated as of August 13, 1999, among OptiCare Health Systems,
Inc., OptiCare Eye Health Centers, Inc., PrimeVision Health, Inc.,
Consolidated Eye Care, Inc. and each of the other subsidiaries and
affiliates of the Company listed as parties on the signature pages
thereto, in favor of the Lenders, the LC Issuer and the Agent for the
Lenders and the LC Issuer, incorporated by reference to Exhibit 10.2
of the Form 8-K.
19
<PAGE>
10.4 Security Agreement, dated as of August 13, 1999, among the Company and
the other parties listed on the signature page thereto in favor of the
Lenders, the LC Issuer and the Agent for the Lenders and the LC
Issuer, incorporated by reference to Exhibit 10.3 of the Form 8-K.
10.5 Conditional Assignment and Trademark Security Agreement dated as of
August 13, 1999, between OptiCare Eye Health Centers, Inc. and the
Agent for the benefit of the Lenders and the LC Issuer, incorporated
by reference to Exhibit 10.4 of the Form 8-K.
10.6 Pledge and Security Agreement, dated as of August 13, 1999, among each
of OptiCare Health Systems, Inc., OptiCare Eye Health Centers, Inc.,
PrimeVision Health, Inc., Consolidated Eye Care, Inc. and each of the
other subsidiaries and affiliates of the Company listed on the
signature pages thereto, in favor of the Agent for the benefit of the
Lenders and the LC Issuer, incorporated by reference to Exhibit 10.5
of the Form 8-K.
10.7 Assignment of Notes and Security Agreement, dated as of August 13,
1999, between PrimeVision Health, Inc. and Bank Austria Creditanstalt
Corporate Finance, Inc., incorporated by reference to Exhibit 10.6 of
the Form 8-K.
10.8 Subordinated Promissory Note of the Company dated August 13, 1999 in
the aggregate principal amount of $2,000,000, payable to Marlin
Capital, L.P.
10.9 Subordinated Convertible Promissory Note of the Company dated
August 13, 1999 in the aggregate principal amount of $4,000,000,
payable to Marlin Capital, L.P..
10.10 Stock Purchase Agreement dated October 1 , 1999, among the Company,
Stephen Cohen, Robert Airola, Gerald Mandel and Reginald
Westbrook(excluding schedules and other attachments thereto).
10.11 Employment Agreement dated August 9, 1999 between the Company and
Samuel B. Petteway. *
10.12 Lease dated March 1, 1997 by and between HBIC, as landlord, and CEC,
as tenant, for premises located at 112-B Zebulon Court, Rocky Mount,
North Carolina.
10.13 Lease dated March 1, 1997 by and between D. Blair Harrold & Allan L.M.
Barker d/b/a Harrold Barker Investment Co. ("HBIC"), as landlord, and
Consolidated Eye Care, Inc. ("CEC"), a wholly-owned subsidiary of
PrimeVision Health, Inc., as tenant, for premises located at 110
Zebulon Court, Rocky Mount, North Carolina.
10.14 Lease dated March 1, 1997 by and between HBIC, as landlord, and CEC,
as tenant, for premises located at 112-A Zebulon Court, Rocky Mount,
North Carolina.
27 Financial Data Schedule (for EDGAR filing only).
- ----------------------
* Management or compensatory plan
20
<PAGE>
b. Reports filed on Form 8-K filed in the period covered by this report:
Current Report (date of event - August 13, 1999), filed August 30, 1999,
including Amendment No. 1 thereto filed September 10, 1999, and
Amendment No. 2 thereto filed September 17, 1999 reporting under Items
1 - Changes in Control of Registrant; Item 2 - Acquisition or
Disposition of Assets; Item 4 - Changes in Registrant's Certifying
Accountant; and Item 5 - Other Events.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned, hereunto duly authorized.
Date: November 15, 1999 OptiCare Health Systems, Inc.
By: /s/ Steven L. Ditman
------------------------------
Steven L. Ditman
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and duly authorized officer)
22
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.4 Certificate of Incorporation of the Company, incorporated by reference
to Exhibit 3.1 of the Form 10-KSB filed February 3, 1995.
3.5 Certificate of Amendment of the Certificate of Incorporation, dated as
of August 13, 1999, incorporated by reference to Exhibit 3.1 of the
Current Report on Form 8-K filed August 30, 1999 (the "Form 8-K").
3.6 Certificate of Designation with respect to the Company's Series A
Convertible Preferred Stock, as filed with the Delaware Department of
State on August 13, 1999, incorporated by reference to Exhibit 3.2 of
the Form 8-K.
4.3 Warrant dated as of August 13, 1999 between the Company and Bank
Austria Creditanstalt Corporate Finance, Inc., incorporated by
reference to Exhibit 3.3 of the Form 8-K.
4.4 Form of Performance Stock Program, incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-4,
Registration No. 333-78501, as amended, first filed on May 14, 1999,
and Annex C thereof (the "Registration Statement"). *
10.1 Agreement and Plan of Merger, dated as of April 12, 1999, among
Saratoga Resources, Inc., OptiCare Shellco Merger Corporation,
PrimeVision Shellco Merger Corporation, OptiCare Eye Health Centers,
Inc. and PrimeVision Health, Inc., incorporated by reference to
Exhibit 2 of the Registration Statement.
10.2 Amended and Restated Loan and Security Agreement, dated as of
August 13, 1999, among Consolidated Eye Care, Inc., OptiCare Eye
Health Centers, Inc., and PrimeVision, Health, Inc., as Borrowers,
OptiCare Health Systems, Inc., as the Parent, the lenders named
therein (the "Lenders"), Bank Austria, AG, as the LC Issuer (the "LC
Issuier), and Bank Austria Creditanstalt Corporate Finance, Inc., as
the agent (the "Agent") (excluding schedules and other attachments
thereto), incorporated by reference to Exhibit 10.1 of the Form 8-K.
10.3 Guaranty, dated as of August 13, 1999, among OptiCare Health Systems,
Inc., OptiCare Eye Health Centers, Inc., PrimeVision Health, Inc.,
Consolidated Eye Care, Inc. and each of the other subsidiaries and
affiliates of the Company listed as parties on the signature pages
thereto, in favor of the Lenders, the LC Issuer and the Agent for the
Lenders and the LC Issuer, incorporated by reference to Exhibit 10.2
of the Form 8-K.
10.4 Security Agreement, dated as of August 13, 1999, among the Company and
the other parties listed on the signature page thereto in favor of the
Lenders, the LC Issuer and the Agent for the Lenders and the LC
Issuer, incorporated by reference to Exhibit 10.3 of the Form 8-K.
10.5 Conditional Assignment and Trademark Security Agreement dated as of
August 13, 1999, between OptiCare Eye Health Centers, Inc. and the
Agent for the benefit of the Lenders and the LC Issuer, incorporated
by reference to Exhibit 10.4 of the Form 8-K.
10.6 Pledge and Security Agreement, dated as of August 13, 1999, among each
of OptiCare Health Systems, Inc., OptiCare Eye Health Centers, Inc.,
PrimeVision Health, Inc., Consolidated Eye Care, Inc. and each of the
other subsidiaries and affiliates of the Company listed on the
signature pages thereto, in favor of the Agent for the benefit of the
Lenders and the LC Issuer, incorporated by reference to Exhibit 10.5
of the Form 8-K.
23
<PAGE>
10.7 Assignment of Notes and Security Agreement, dated as of August 13,
1999, between PrimeVision Health, Inc. and Bank Austria Creditanstalt
Corporate Finance, Inc., incorporated by reference to Exhibit 10.6 of
the Form 8-K.
10.8 Subordinated Promissory Note of the Company dated August 13, 1999 in
the aggregate principal amount of $2,000,000, payable to Marlin
Capital, L.P.
10.9 Subordinated Convertible Promissory Note of the Company dated
August 13, 1999 in the aggregate principal amount of $4,000,000,
payable to Marlin Capital, L.P..
10.10 Stock Purchase Agreement dated October 1 , 1999, among the Company,
Stephen Cohen, Robert Airola, Gerald Mandel and Reginald Westbrook
(excluding schedules and other attachments thereto).
10.11 Employment Agreement dated August 9, 1999 between the Company and
Samuel B. Petteway. *
10.12 Lease dated March 1, 1997 by and between HBIC, as landlord, and CEC,
as tenant, for premises located at 112-B Zebulon Court, Rocky Mount,
North Carolina.
10.13 Lease dated March 1, 1997 by and between D. Blair Harrold & Allan L.M.
Barker d/b/a Harrold Barker Investment Co. ("HBIC"), as landlord, and
Consolidated Eye Care, Inc. ("CEC"), a wholly-owned subsidiary of
PrimeVision Health, Inc., as tenant, for premises located at 110
Zebulon Court, Rocky Mount, North Carolina.
10.14 Lease dated March 1, 1997 by and between HBIC, as landlord, and CEC,
as tenant, for premises located at 112-A Zebulon Court, Rocky Mount,
North Carolina.
27 Financial Data Schedule (for EDGAR filing only).
- -------------------------
* Management or compensatory plan
34
<PAGE>
SUBORDINATED PROMISSORY NOTE
FOR VALUE RECEIVED, OptiCare Health Systems, Inc., a Delaware
corporation, formerly known as Saratoga Resources, Inc. (the "Borrower"), having
a business address at 87 Grandview Avenue, Waterbury, CT 06708, hereby
unconditionally promises to pay to the order of MARLIN CAPITAL, L.P., its
successors and assigns (the "Holder"), without setoff, at August 13, 2002,
unless the payment date of this Note is accelerated pursuant to Section 4 hereof
(the "Maturity Date"), at its offices at 555 Theodore Fremd Avenue, Suite B-302,
Rye, New York 10580, or at such other place as the holder or holders of this
Note may from time to time designate, in lawful money of the United States of
America and in immediately available funds, the principal amount equal to TWO
MILLION DOLLARS ($2,000,000.00). The Borrower further promises to pay interest
in like money and funds to the Holder at its office set forth above (or at such
other place as the holder or holders of this Subordinated Promissory Note may
from time to time designate) on the unpaid principal amount of the loan to the
Borrower from time to time outstanding from and including the date hereof until
paid in full at the rates and on the dates determined in accordance with this
Subordinated Promissory Note (the "Note").
1. INTEREST PAYMENT. (a) This Note shall bear interest
compounded quarterly from the date hereof to the Maturity Date on the unpaid
principal balance hereof and accrued interest at the rate of eight (8%) percent
per annum, and after the Maturity Date (whether by acceleration or otherwise) or
in the Event of Default, at the rate of twelve (12%) percent per annum. Interest
shall be calculated on the basis of actual days elapsed over a 360-day year.
(b) To the extent not otherwise paid, all accrued interest
shall be paid on the first business day following each March 31, June 30,
September 30 and December 31, commencing October 1, 1999 and until the unpaid
balance hereof is paid in full. Notwithstanding the foregoing, in the Event of
Default by the Borrower in the payment of any interest on any payment date and
such default is not cured for a period of ten (10) days, then the interest rate
shall automatically become twelve (12%) percent per annum as of the commencement
of any such default until cured.
Notwithstanding any provision of this Note, the Holder does
not intend to charge and shall not charge and the Borrower shall not be required
to pay any amount of interest or other charges in excess of the maximum
permitted by the applicable law of the State of New York, or other applicable
jurisdictions; if any higher rate ceiling is lawful, then that higher rate
ceiling shall apply. Any payment in excess of such maximum shall be refunded to
the Borrower or credited against principal, at the option of the Holder.
2. PRINCIPAL PAYMENT. The principal amount of all the Note not
previously returned to the Borrower shall be due and payable to the Holders in
full on the Maturity Date, together with any and all accrued interest through
the Maturity Date.
3. ACTIONS REQUIRING THE CONSENT OF HOLDERS OF THE NOTE. As
long as this Note is outstanding, the written consent of the Holders of at least
an aggregate of 66-2/3% of the
<PAGE>
principal amount of the Note at the time outstanding shall be necessary for
effecting or validating any of the following transactions:
(a) The sale, conveyance, or other disposition of all
or substantially all of the property or business of the Borrower or effectuation
of any transaction or series of related transactions in which more than 66-2/3%
of the voting power of the Borrower is disposed of;
(b) The liquidation, dissolution or winding-up,
whether voluntary or involuntary, of the Borrower or any of its material
subsidiaries or any merger or consolidation of the Borrower or any material
subsidiary with or into another entity unless immediately following such merger
or consolidation, the merged or consolidated entity shall have a tangible net
worth equal to or greater than that of the Borrower immediately prior to the
merger or consolidation or the sale of all or substantially all the assets of
the Borrower or any subsidiary other than with or into the Borrower or any
subsidiary of the Borrower;
(c) The declaration or payment of any dividends
(other than stock dividends) to the holders of common stock of the Borrower or
any other class of capital stock of the Borrower; or
(d) the repurchase or redemption of any shares of
capital stock of the Borrower.
4. EVENTS OF DEFAULT. The following shall constitute "Events
of Default" hereunder:
(a) Borrower shall have failed to make any payment due
hereunder within ten (10) days after the due date thereafter, and shall
fail to make such payment for an additional ten (10) days after written
notice of such non-payment; or
(b) Borrower shall have breached any material obligation under
this Note, and such breach shall not have been cured within thirty (30)
days after receipt by Borrower of the Holder's written demand to cure
such breach;
(c) The Agent (as defined in Section 9 below) shall either
have accelerated the maturity of the Senior Indebtedness (as defined in
Section 9 below) or instituted actions or proceeded to protect and
enforce its rights and remedies under the Loan Agreement either by suit
in equity or by action at law or there shall exist for a period of 180
days an Event of Default under the Loan Agreement (as defined in
Section 9 below) on any Senior Indebtedness.
Upon the occurrence of an Event of Default hereunder, the Holder may by written
notice to Borrower declare the entire unpaid principal amount of this Note
together with accrued interest and charges thereon due and payable, and such
amount may be collected forthwith, subject to Section 9 hereof.
-2-
<PAGE>
5. [INTENTIONALLY OMITTED].
6. ASSIGNMENT. The undersigned acknowledges that the Holder
may assign, transfer or sell all or a portion of its rights and interests to and
under this Note to one or more Persons and that such Persons shall thereupon
become Holder vested with all of the rights and benefits of the Holder in
respect hereof as to all or that portion of the Note which is so assigned,
transferred or sold.
7. NON-WAIVER. The failure at any time of the Holder to
exercise any of its options or any other rights hereunder shall not constitute a
waiver thereof, nor shall it be a bar to the exercise of any of its options or
rights at a later date. All rights and remedies of the Holder shall be
cumulative and may be pursued singly, successively or together, at the option of
the Holder. The acceptance by the Holder of any partial payment shall not
constitute a waiver of any default or of any of the Holder's rights under this
Note. No waiver of any of its rights hereunder, and no modification or amendment
of this Note, shall be deemed to be made by the Holder unless the same shall be
in writing, duly signed on behalf of the Holder; and each such waiver shall
apply only with respect to the specific instance involved, and shall in no way
impair the rights of the Holder or the obligations of Obligor to the Holder in
any other respect at any other time.
8. APPLICABLE LAW, VENUE AND JURISDICTION; SERVICE OF PROCESS.
This Note is governed by and has been entered into and shall be construed and
enforced in accordance with the laws of the State of New York without reference
to the choice of law principles thereof. This Note shall be subject to the
exclusive jurisdiction of the Federal District Court, Southern District of New
York and if such court does not have proper jurisdiction, the State Courts of
New York County, New York. The parties to this Note agree that any breach of any
term or condition of this Note shall be deemed to be a breach occurring in the
State of New York by virtue of a failure to perform an act required to be
performed in the State of New York and irrevocably and expressly agree to submit
to the jurisdiction of the Federal District Court, Southern District of New York
and if such court does not have proper jurisdiction, the State Courts of New
York County, New York for the purpose of resolving any disputes among the
parties relating to this Note or the transactions contemplated hereby. The
parties irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Note, or any judgment entered
by any court in respect hereof brought in New York County, New York, and further
irrevocably waive any claim that any suit, action or proceeding brought in
Federal District Court, Southern District of New York and if such court does not
have proper jurisdiction, the State Courts of New York County, New York has been
brought in an inconvenient forum.
9. SUBORDINATION TERMS
Section 9.1. Note Subordinated to Senior Indebtedness
-3-
<PAGE>
By its acceptance to this Note, the holder thereof (the
"Noteholder") agrees that (a) the payment of the principal of and interest on
this Note and (b) any other payment in respect of this Note, including on
account of the acquisition or redemption of this Note by the Borrower is
subordinated, to the extent and in the manner provided in this Section 9, to the
prior payment in full of all Senior Indebtedness of the Borrower whether
outstanding at the date of this Note or thereafter created, incurred, assumed or
guaranteed, and that these subordination provisions are for the benefit of the
holders of Senior Indebtedness.
This Section 9 shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder and
any one or more of them may enforce such provisions.
Section 9.2. Payment Subordination
No payment shall be made by the Borrower or its Subsidiaries,
and the Noteholder will not ask for, demand, sue for, take or receive from the
Borrower or any of its Subsidiaries, by setoff or in any other manner, the whole
or any part of the Subordinated Obligations, if at the time thereof, or giving
effect thereto, there exists or would exist a Default or Event of Default under
the Loan Agreement.
Section 9.3. Liens Subordination
The Noteholder represents and agrees that the Subordinated
Obligations are and will remain unsecured and agrees that neither the Noteholder
nor any Person acting for the benefit of the Noteholder, will ask for, demand,
sue for, take, receive or possess any lien, claim, security interest, security
title or any other encumbrance on or interest in all or any portion of the
assets of Borrower or any of its subsidiaries as security for or in payment of
all or any portion of the Subordinated Obligations.
Section 9.4. Subrogation
Regardless of whether the Senior Indebtedness is secured or
unsecured, the holders of the Senior Indebtedness shall be subrogated to
Noteholder with respect to Noteholder's claims against the Borrower in respect
of the Subordinated Obligations until all of the Senior Indebtedness of the
Borrower and its Subsidiaries shall have been paid and fully satisfied and the
provisions of this Section 9 have been terminated in accordance with Section 9.8
hereof, unless, and to the extent that, the Borrower shall be in compliance with
all of the covenants contained in the Loan Documents before and immediately
after giving effect to any payment in respect of such claims.
Section 9.5. Priority on Distribution
-4-
<PAGE>
In the event of any distribution, division or application,
partial or complete, voluntary or involuntary, by operation of law or otherwise,
of all or any part of the assets of the Borrower or any of its Subsidiaries or
readjustment of the obligations and indebtedness of the Borrower or any of its
Subsidiaries, whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any of the Subordinated
Obligations, or the application of the assets of Borrower or any of its
Subsidiaries to the payment or liquidation thereof, or the dissolution or other
winding up of the Borrower's or such Subsidiary's business, or upon the sale or
other disposition of all or substantially all of the Borrower's or its
Subsidiaries assets or of all of the issued and outstanding shares of capital
stock of the Borrower or any Subsidiary, then, and in any such event, (a) the
holders of the Senior Indebtedness shall be entitled to receive payment in full
of any and all of the Senior Indebtedness then owing to them prior to the
payment of all or any part of the Subordinated Obligations, and (b) any payment
or distribution of any kind or character, either in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any or
all of the Subordinated Obligations shall be paid or delivered directly to the
Agent for application on any of the Senior Indebtedness owing, due or not due,
until such Senior Indebtedness shall have first been fully paid and satisfied.
Section 9.6. Grant of Authority to the Holders of the Senior
Indebtedness
In order to enable the holders of the Senior Indebtedness to
enforce their respective rights hereunder in any such action or proceeding, the
Agent, or any Person designated by it, in either case for the benefit of the
holders of the Senior Indebtedness, is hereby irrevocably authorized and
empowered, in its discretion prior to the full payment and satisfaction of the
Senior Indebtedness (subject in all respect to Section 9.8 hereof), unless, and
to the extent that, the Borrower shall be in compliance with all of the
covenants contained in the Loan Documents to: (a) make and present for and on
behalf of Noteholder such proofs of claims against the Borrower on account of
the Subordinated Obligations as the holders of the Senior Indebtedness may deem
expedient or proper and to vote such proofs of claims in any such proceeding and
to receive and collect any and all dividends or other payments or disbursements
made thereon in whatever form the same may be paid or issued and to apply the
same on account of any of the Senior Indebtedness, owing to the holders of the
Senior Indebtedness, or any of them; (b) to demand, sue for, collect and receive
every such payment or distribution and give acquittance therefore, and (c) to
file claims and take such other acts or commence such other proceedings, in
either the Agent's own name or in the name of Noteholder or otherwise, as either
the Agent or the holders of the Senior Indebtedness may deem necessary or
advisable for the enforcement of this Subordinated Note. Noteholder shall
execute and deliver to the holders of the Senior Indebtedness such powers of
attorney, assignments or other instruments or documents, as may be reasonably
requested by the holders of the Senior Indebtedness, or any of them, in order to
confirm the right of the Agent, for the benefit of the holders of the Senior
Indebtedness, to enforce any and all claims upon or with respect to any or all
of the Subordinated Obligations and to collect and receive any and all payments
or distributions which may be payable or deliverable at any time upon or with
respect to the Subordinated Obligations, all for the benefit of the holders of
the Senior Indebtedness.
-5-
<PAGE>
Section 9.7. Payments Received by Noteholder
Should any payment or distribution or security or instrument
or proceeds thereof be received by Noteholder upon or with respect to the
Subordinated Obligations prior to the satisfaction of all of the Senior
Indebtedness and the termination of the provisions of this Section 9 in
accordance with Section 9.8 hereof, unless such payment is made in compliance
with the provisions of Section 9.2 hereof, Noteholder shall receive and hold the
same in trust, as trustee, for the benefit of holders of the Senior Indebtedness
and shall forthwith deliver the same to the Agent in precisely the form received
(except for endorsement or assignment by Noteholder where necessary), for
application on any of the Senior Indebtedness of the Borrower, due or not due,
and, until so delivered, the same shall be held in trust by Noteholder as the
property of the holders of the Senior Indebtedness. In the event of the failure
of Noteholder to make any such endorsement or assignment to holders of the
Senior Indebtedness, the Agent, or any person designated by it, is hereby
irrevocably authorized to make the same.
Section 9.8. Term
The provisions of this Section 9 constitute a continuing
agreement of subordination and shall remain in effect until the Senior
Indebtedness has been indefeasibly paid and satisfied in full and either the
Loan Agreement has been terminated in writing by the holders of the Senior
Indebtedness or the rights of the Borrower to receive loans or extension of
credit under the Loan Agreement have been terminated; provided, however, that
this Subordinated Note shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Senior
Indebtedness is rescinded or must otherwise be restored by any Person upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower
and/or any of its Subsidiaries or otherwise. Subject to the obligations of the
Noteholder hereunder, nothing herein shall be deemed to limit or diminish in any
manner any rights and remedies available to the Noteholder with respect to any
other creditors (other than the Agent or the Lenders), indebtedness, liabilities
or obligations of the Borrower (other than the Senior Indebtedness).
-6-
<PAGE>
Section 9.9. Additional Agreements in Favor of the Holders of
Senior Indebtedness
The Agent and the Lenders, or any of them, at any time and
from time to time, may enter into such agreement or agreements with the Borrower
or any of its Subsidiaries as the holders of the Senior Indebtedness, or any of
them, may deem proper extending the time of payment of or renewing, modifying,
amending or otherwise altering the terms of all or any of the Senior
Indebtedness, or affecting the security underlying any or all of the Senior
Indebtedness, or may exchange, sell, release, surrender or otherwise deal with
any such security, without in any way impairing or affecting the effectiveness
of the subordination provisions contained in this Section 9.
Section 9.10 Noteholder's Waivers
All of the Senior Indebtedness shall be deemed to have been
made or incurred in reliance upon the subordination provisions contained in this
Section 9, and Noteholder expressly waives all notice of the acceptance by the
holders of the Senior Indebtedness of the subordination and other provisions of
this Subordinated Note, all other notices whatsoever, and reliance by the
holders of the Senior Indebtedness upon the subordination and other agreement as
herein provided. By its acceptance of this Subordinated Note, the Noteholder
agrees that: (a) no holder of the Senior Indebtedness has made any warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Loan Agreement or the other Loan
Documents, or the collectibility of the Senior Indebtedness; (b) the holders of
the Senior Indebtedness shall be entitled to manage and supervise the loans and
other extensions of credit from the holders of the Senior Indebtedness in the
Borrower in accordance with their usual practices, modified form time to time as
they deem appropriate under the circumstances without regard to the existence of
any rights that Noteholder may now or hereafter have in or to any of the assets
of the Borrower; and (c) no holder of the Senior Indebtedness shall have any
liability to Noteholder for, and Noteholder waives any claim which it may now or
hereafter have against the holders of the Senior Indebtedness, or any of them,
arising out of, any and all actions which the holders of the Senior
Indebtedness, in good faith, take or omit to take (including, without
limitation, actions with respect to the creation, perfection or continuation of
liens or security interests in the Collateral, actions with respect to the
occurrence of an Event of Default (as defined in the Loan Agreement), actions
with respect to the foreclosure upon, sale of, release of, depreciation of or
failure to realize upon, any of the Collateral and actions with respect to the
collection of any claim for all or any part of the Senior Indebtedness from any
account debtor, guarantor or any other party) with respect to the Loan Agreement
or the other Loan Documents or the collection of the Senior Indebtedness or the
valuation, use, protection or release or the Collateral.
Section 9.11. Subordination Rights Not Impaired by Acts or
Omissions of the Borrower or Holders or Senior
Indebtedness.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination provisions contained in this Section 9
shall at any time in any way be prejudiced or
-7-
<PAGE>
impaired by any act or failure to act on the part of the Borrower or its
Subsidiaries or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Borrower with the terms of this Subordinated
Note, regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may extend,
renew, modify, or amend the terms of the Senior Indebtedness or any security
therefore and release, sell or exchange such security or otherwise deal freely
with the Borrower, all without affecting the liabilities and obligations of the
Noteholders to the holders of the Senior Indebtedness.
Section 9.12. Application of Payment
All payments received by the holders of the Senior
Indebtedness, or any of them, from the Borrower may be applied and reapplied, in
whole or in part, to any of the Senior Indebtedness, as the holders of the
Senior Indebtedness, as the case may be, in their sole discretion, deem
appropriate.
Section 9.13. Definitions.
When used in this Note, the following terms shall have the
following respective meanings.
"Agent" shall mean Bank Austria Creditanstalt Corporate
Finance, Inc., in its capacity as agent for such Lenders under the Loan
Agreement, together with any successor or replacement agent or any co-agent
under the Loan Agreement.
"Collateral" shall have the meaning ascribed to it in the Loan
Agreement.
"Indebtedness" shall mean, as applied to the Borrower, (a) all
indebtedness, obligations or other liabilities, contingent or otherwise for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, and any accrued interest, fees and charges
relating thereto, under profit payment agreements or similar agreements or
capital lease obligations; and (b) all indebtedness, obligations or other
liabilities of such Person or others secured by a lien on any property of such
Person, whether or not such indebtedness, obligations or liabilities are assumed
by such Person, all as of such time.
"LC Issuer" shall have the meaning ascribed to such term in
the Loan Agreement.
"Lenders" shall have the meaning ascribed to such term in the
Loan Agreement.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrances, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having
-8-
<PAGE>
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security increase
under the UCC or comparable law of any jurisdiction).
"Loan Agreement" shall mean that certain Loan and Security
Agreement dated the date hereof, among the Borrower, certain of its
subsidiaries, the LC Issuer, the Lenders and the Agent, as heretofore, now or
hereafter renewed, amended, modified, supplemented and/or restated or any loan
agreement entered into by the Borrower that supercedes and replaces the Loan
Agreement.
"Loan Documents" shall mean any other instrument, document and
agreement form time to time entered into by the Borrower or any of its
Subsidiaries pursuant to or in connection with the Loan Agreement or any other
Loan Document.
"Person" shall mean and include any individuals, sole
proprietorship, partnership, joint venture, limited liability company, trust,
unincorporated organization, association, Borrower, institution, entity, party
or government (whether national, federal, state, county, city, municipal, or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Senior Indebtedness" shall mean any and all indebtedness,
liabilities and obligations of the Borrower or any of its Subsidiaries of every
kind and nature (including, without limitation, principal, interest, charges,
expenses, attorneys' fees and other sums chargeable to the Borrower or any of
its Subsidiaries and future advances made to or for the benefit of the Borrower
or any of its Subsidiaries including any interest that accrues during any
proceeding under the Bankruptcy Code of 1978, as amended, whether or not such
interest is allowed as a claim in such proceeding) owed or owing to Agent, the
LC Issuer or any Lender arising under the Loan Agreement, or arising pursuant to
any of the Loan Documents, or acquired from Agent by any holder of the Senior
Indebtedness from any other source, guaranty, Indemnification, interest rate
swap, cap, collar or similar interest rate hedge agreement or in any other
manner, in each case whether direct or indirect, absolute or contingent, primary
or secondary, due or to become due, now existing or hereafter acquired or
arising.
"Subordinated Indebtedness" shall mean Indebtedness of the
Borrower that has been subordinated to the Indebtedness under the Loan Agreement
or successor or replacement senior credit agreement.
"Subordinated Obligations" shall mean any and all monies which
may now or hereafter be owing by Borrower or any of its Subsidiaries to a Holder
under or arising from this Note, principal or interest, due or not due, direct
or indirect, absolute or contingent, primary or secondary, now existing or
hereafter acquired or arising.
-9-
<PAGE>
"Subsidiary" shall mean any Person, of which more than fifty
percent (50%) of the outstanding shares of capital stock or other ownership
interest having ordinary voting power to elect a majority of the board of
directors of such Borrower or similar governing body of such other Person
(irrespective of whether or not at the time stock or other ownership interests
of any other class or classes of such other Person shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Borrower or by one or more
"Subsidiaries" of the Borrower.
10. BINDING EFFECT. This Note shall be binding upon and inure
to the benefit of Borrower and the Holder and their respective successors,
assigns, heirs and personal representatives, provided, however, that no
obligations of the Borrower hereunder can be assigned without prior written
consent of the Holder.
11. GENERAL. Time is of the essence of this Note. In the event
this Note, or any part thereof, is collected by or through an attorney-in-law,
Borrower agrees to pay all costs of collection including, but not limited to,
reasonable attorneys' fees.
Presentment for payment, demand, protest and notice of demand,
protest and nonpayment, and all other notices are hereby waived by Borrower. No
failure to accelerate the debt evidenced hereby by reason of default hereunder,
acceptance of a past due installment, or indulgences granted from time to time
shall be construed (i) as a novation of this Note or as a reinstatement of the
indebtedness evidenced hereby or as a waiver of such right of acceleration or of
the right of the Holder thereafter to insist upon strict compliance with the
terms of this Note or (ii) to prevent the exercise of such right of acceleration
or any other right granted hereunder or by applicable law; and Borrower hereby
expressly waives the benefit of any statute or rule of law or equity now
provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the
payment of this Note shall operate to release, discharge, modify, change, or
affect the original liability of Borrower under this Note, either in whole or in
part unless the Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, or discharge is sought.
To the extent permitted by law, Borrower hereby waives and
renounces for itself, its successors and assigns, all rights to the benefits of
any moratorium, reinstatement, marshaling, forbearance, valuation, stay,
extension, redemption, appraisement exemption, and homestead now provided, or
which may hereafter be provided by the Constitution and laws of the United
States of America and of any state thereof, both as to itself and in and to all
of its property, real and personal, against the enforcement and collection of
the obligations evidenced by this Note.
-10-
<PAGE>
If for any reason whatsoever fulfillment of any provision of
this Note, at the time performance of such provision shall be due, shall involve
transcending the limit of validity presently prescribed by any applicable usury
statute or any other applicable law, with regard to obligations of like
character and amount, then, ipso facto, the obligations to be fulfilled shall be
reduced to the limit of such validity, so that in no event shall any exaction be
possible under this Note or under any other instrument evidencing or securing
the indebtedness evidenced hereby, that is in excess of the current limit of
such validity, but such obligation shall be fulfilled to the limit of such
validity.
This Note shall be construed and enforced in accordance with
the substantive laws of the State of New York, without regard to any contrary
conflict of law rules of the State of New York.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
signed by its duly authorized officer.
OPTICARE HEALTH SYSTEMS, INC.
(F/K/A SARATOGA RESOURCES, INC.)
By: /s/ Thomas F. Cooke
----------------------------------
Name: Thomas F. Cooke
Title: President
AGREED WITH RESPECT TO
SECTION 9 HEREOF BY:
Marlin Capital L.P.
By: Marlin Holdings, Inc.
General Partner
By: /s/ Ian Ashken
--------------------------------
Name: Ian Ashken
Title: Vice Chairman
-11-
<PAGE>
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, OptiCare Health Systems, Inc., a Delaware
corporation, formerly known as Saratoga Resources, Inc. (the "Borrower"), having
a business address at 87 Grandview Avenue, Waterbury, CT 06708, hereby
unconditionally promises to pay to the order of MARLIN CAPITAL, L.P., its
successors and assigns (the "Holder"), without setoff, at August 13, 2002,
unless the payment date of this Note is accelerated pursuant to Section 4 hereof
(the "Maturity Date"), at its offices at 555 Theodore Fremd Avenue, Suite B-302,
Rye, New York 10580, or at such other place as the holder or holders of this
Note may from time to time designate, in lawful money of the United States of
America and in immediately available funds, the principal amount equal to FOUR
MILLION DOLLARS ($4,000,000.00). The Borrower further promises to pay interest
in like money and funds to the Holder at its office set forth above (or at such
other place as the holder or holders of this Subordinated Promissory Note may
from time to time designate) on the unpaid principal amount of the loan to the
Borrower from time to time outstanding from and including the date hereof until
paid in full at the rates and on the dates determined in accordance with this
Subordinated Promissory Note (the "Note").
1. INTEREST PAYMENT. (a) This Note shall bear no interest
from the date hereof until February 13, 2000. Commencing February 14, 2000, this
Note shall bear interest compounded quarterly to the Maturity Date on the unpaid
principal balance hereof and accrued interest at the rate of nine (9%) percent
per annum, and after the Maturity Date (whether by acceleration or otherwise) or
in the Event of Default, at the rate of twelve (12%) percent per annum. Interest
shall be calculated on the basis of actual days elapsed over a 360-day year.
(b) To the extent not otherwise paid or converted,
all accrued interest shall be paid on the Maturity Date (whether by acceleration
or otherwise).
Notwithstanding any provision of this Note, the Holder does
not intend to charge and shall not charge and the Borrower shall not be required
to pay any amount of interest or other charges in excess of the maximum
permitted by the applicable law of the State of New York, or other applicable
jurisdictions; if any higher rate ceiling is lawful, then that higher rate
ceiling shall apply. Any payment in excess of such maximum shall be refunded to
the Borrower or credited against principal, at the option of the Holder.
2. PRINCIPAL PAYMENT. The principal amount of all the Note
not previously returned to the Borrower shall be due and payable to the Holders
in full on the Maturity Date, together with any and all accrued interest through
the Maturity Date.
3. ACTIONS REQUIRING THE CONSENT OF HOLDERS OF THE NOTE. As
long as this Note is outstanding, the written consent of the Holders of at least
an aggregate of 66-2/3% of the principal amount of the Note at the time
outstanding shall be necessary for effecting or validating any of the following
transactions:
-1-
<PAGE>
(a) The sale, conveyance, or other disposition of all
or substantially all of the property or business of the Borrower or effectuation
of any transaction or series of related transactions in which more than 66-2/3%
of the voting power of the Borrower is disposed of;
(b) The liquidation, dissolution or winding-up,
whether voluntary or involuntary, of the Borrower or any of its material
subsidiaries or any merger or consolidation of the Borrower or any material
subsidiary with or into another entity unless immediately following such merger
or consolidation, the merged or consolidated entity shall have a tangible net
worth equal to or greater than that of the Borrower immediately prior to the
merger or consolidation or the sale of all or substantially all the assets of
the Borrower or any subsidiary, other than with or into the Borrower or any
subsidiary of the Borrower;
(c) The declaration or payment of any dividends
(other than stock dividends) to the holders of common stock of the Borrower or
any other class of capital stock of the Borrower; or
(d) the repurchase or redemption of any shares of
capital stock of the Borrower.
4. EVENTS OF DEFAULT. The following shall constitute "Events
of Default" hereunder:
(a) Borrower shall have failed to make any payment
due hereunder within ten (10) days after the due date thereafter, and shall fail
to make such payment for an additional ten (10) days after written notice of
such non-payment; or
(b) Borrower shall have breached any material
obligation under this Note, and such breach shall not have been cured within
thirty (30) days after receipt by Borrower of the Holder's written demand to
cure such breach including a material breach of Sections 11 and 12 hereof;
(c) The Agent (as defined in Section 9 below) shall
either have accelerated the maturity of the Senior Indebtedness (as defined in
Section 9 below) or instituted actions or proceeded to protect and enforce its
rights and remedies under the Loan Agreement either by suit in equity or by
action at law or there shall exist for a period of 180 days an Event of Default
under the Loan Agreement (as defined in Section 9 below) on any Senior
Indebtedness.
Upon the occurrence of an Event of Default hereunder, the Holder may by written
notice to Borrower declare the entire unpaid principal amount of this Note
together with accrued interest and charges thereon due and payable, and such
amount may be collected forthwith, subject to Section 9 hereof.
5. [INTENTIONALLY OMITTED]
-2-
<PAGE>
6. ASSIGNMENT. The undersigned acknowledges that the Holder
may assign, transfer or sell all or a portion of its rights and interests to and
under this Note to one or more Persons and that such Persons shall thereupon
become Holder vested with all of the rights and benefits of the Holder in
respect hereof as to all or that portion of the Note which is so assigned,
transferred or sold.
7. NON-WAIVER. The failure at any time of the Holder to
exercise any of its options or any other rights hereunder shall not constitute a
waiver thereof, nor shall it be a bar to the exercise of any of its options or
rights at a later date. All rights and remedies of the Holder shall be
cumulative and may be pursued singly, successively or together, at the option of
the Holder. The acceptance by the Holder of any partial payment shall not
constitute a waiver of any default or of any of the Holder's rights under this
Note. No waiver of any of its rights hereunder, and no modification or amendment
of this Note, shall be deemed to be made by the Holder unless the same shall be
in writing, duly signed on behalf of the Holder; and each such waiver shall
apply only with respect to the specific instance involved, and shall in no way
impair the rights of the Holder or the obligations of Borrower to the Holder in
any other respect at any other time.
8. APPLICABLE LAW, VENUE AND JURISDICTION; SERVICE OF
PROCESS. This Note is governed by and has been entered into and shall be
construed and enforced in accordance with the laws of the State of New York
without reference to the choice of law principles thereof. This Note shall be
subject to the exclusive jurisdiction of the Federal District Court, Southern
District of New York and if such court does not have proper jurisdiction, the
State Courts of New York County, New York. The parties to this Note agree that
any breach of any term or condition of this Note shall be deemed to be a breach
occurring in the State of New York by virtue of a failure to perform an act
required to be performed in the State of New York and irrevocably and expressly
agree to submit to the jurisdiction of the Federal District Court, Southern
District of New York and if such court does not have proper jurisdiction, the
State Courts of New York County, New York for the purpose of resolving any
disputes among the parties relating to this Note or the transactions
contemplated hereby. The parties irrevocably waive, to the fullest extent
permitted by law, any objection which they may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Note, or any judgment entered by any court in respect hereof brought in New
York County, New York, and further irrevocably waive any claim that any suit,
action or proceeding brought in Federal District Court, Southern District of New
York and if such court does not have proper jurisdiction, the State Courts of
New York County, New York has been brought in an inconvenient forum.
9. SUBORDINATION TERMS
Section 9.1. Note Subordinated to Senior Indebtedness
By its acceptance to this Note, the holder thereof (the
"Noteholder") agrees that (a) the payment of the principal of and interest on
this Note and (b) any other payment in respect of this Note, including on
account of the acquisition or redemption of this Note by the Borrower is
subordinated, to the extent and in the manner provided in this Section 9, to the
prior payment in full of all Senior Indebtedness of the Borrower whether
outstanding at the date of this Note or thereafter
-3-
<PAGE>
created, incurred, assumed or guaranteed, and that these subordination
provisions are for the benefit of the holders of Senior Indebtedness.
This Section 9 shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder and
any one or more of them may enforce such provisions.
Section 9.2. Payment Subordination
No payment shall be made by the Borrower or its Subsidiaries,
and the Noteholder will not ask for, demand, sue for, take or receive from the
Borrower or any of its Subsidiaries, by setoff or in any other manner, the whole
or any part of the Subordinated Obligations if at the time thereof, or giving
effect thereto, there exists or would exist a Default or Event of Default under
the Loan Agreement.
Section 9.3. Liens Subordination
The Noteholder represents and agrees that the Subordinated
Obligations are and will remain unsecured and agrees that neither the Noteholder
nor any Person acting for the benefit of the Noteholder, will ask for, demand,
sue for, take, receive or possess any lien, claim, security interest, security
title or any other encumbrance on or interest in all or any portion of the
assets of Borrower or any of its subsidiaries as security for or in payment of
all or any portion of the Subordinated Obligations.
Section 9.4. Subrogation
Regardless of whether the Senior Indebtedness is secured or
unsecured, the holders of the Senior Indebtedness shall be subrogated to
Noteholder with respect to Noteholder's claims against the Borrower in respect
of the Subordinated Obligations until all of the Senior Indebtedness of the
Borrower and its Subsidiaries shall have been paid and fully satisfied and the
provisions of this Section 9 have been terminated in accordance with Section 9.8
hereof, unless, and to the extent that, the Borrower shall be in compliance with
all of the covenants contained in the Loan Documents before and immediately
after giving effect to any payment in respect of such claims.
Section 9.5. Priority on Distribution
In the event of any distribution, division or application,
partial or complete, voluntary or involuntary, by operation of law or otherwise,
of all or any part of the assets of the Borrower or any of its Subsidiaries or
readjustment of the obligations and indebtedness of the Borrower or any of its
Subsidiaries, whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any of the Subordinated
Obligations, or the application of the assets of Borrower or any of its
Subsidiaries to the payment or liquidation thereof, or the dissolution or other
winding up of the Borrower's or such Subsidiary's business, or upon the sale or
other disposition of all or substantially
-4-
<PAGE>
all of the Borrower's or its Subsidiaries assets or of all of the issued and
outstanding shares of capital stock of the Borrower or any Subsidiary, then, and
in any such event, (a) the holders of the Senior Indebtedness shall be entitled
to receive payment in full of any and all of the Senior Indebtedness then owing
to them prior to the payment of all or any part of the Subordinated Obligations,
and (b) any payment or distribution of any kind or character, either in cash,
securities or other property, which shall be payable or deliverable upon or with
respect to any or all of the Subordinated Obligations shall be paid or delivered
directly to the Agent for application on any of the Senior Indebtedness owing,
due or not due, until such Senior Indebtedness shall have first been fully paid
and satisfied.
Section 9.6. Grant of Authority to the Holders of the Senior
Indebtedness
In order to enable the holders of the Senior Indebtedness to
enforce their respective rights hereunder in any such action or proceeding, the
Agent, or any Person designated by it, in either case for the benefit of the
holders of the Senior Indebtedness, is hereby irrevocably authorized and
empowered, in its discretion prior to the full payment and satisfaction of the
Senior Indebtedness (subject in all respect to Section 9.8 hereof), unless, and
to the extent that, the Borrower shall be in compliance with all of the
covenants contained in the Loan Documents to: (a) make and present for and on
behalf of Noteholder such proofs of claims against the Borrower on account of
the Subordinated Obligations as the holders of the Senior Indebtedness may deem
expedient or proper and to vote such proofs of claims in any such proceeding and
to receive and collect any and all dividends or other payments or disbursements
made thereon in whatever form the same may be paid or issued and to apply the
same on account of any of the Senior Indebtedness, owing to the holders of the
Senior Indebtedness, or any of them; (b) to demand, sue for, collect and receive
every such payment or distribution and give acquittance therefore, and (c) to
file claims and take such other acts or commence such other proceedings, in
either the Agent's own name or in the name of Noteholder or otherwise, as either
the Agent or the holders of the Senior Indebtedness may deem necessary or
advisable for the enforcement of this Subordinated Note. Noteholder shall
execute and deliver to the holders of the Senior Indebtedness such powers of
attorney, assignments or other instruments or documents, as may be reasonably
requested by the holders of the Senior Indebtedness, or any of them, in order to
confirm the right of the Agent, for the benefit of the holders of the Senior
Indebtedness, to enforce any and all claims upon or with respect to any or all
of the Subordinated Obligations and to collect and receive any and all payments
or distributions which may be payable or deliverable at any time upon or with
respect to the Subordinated Obligations, all for the benefit of the holders of
the Senior Indebtedness.
Section 9.7. Payments Received by Noteholder
Should any payment or distribution or security or instrument
or proceeds thereof be received by Noteholder upon or with respect to the
Subordinated Obligations prior to the satisfaction of all of the Senior
Indebtedness and the termination of the provisions of this Section 9 in
accordance with Section 9.8 hereof, unless such payment is made in compliance
with the provisions of Section 9.2 hereof, Noteholder shall receive and hold the
same in trust, as trustee, for the benefit of holders of the Senior Indebtedness
and shall forthwith deliver the same to the Agent in precisely the form received
(except for endorsement or assignment by Noteholder where necessary), for
-5-
<PAGE>
application on any of the Senior Indebtedness of the Borrower, due or not due,
and, until so delivered, the same shall be held in trust by Noteholder as the
property of the holders of the Senior Indebtedness. In the event of the failure
of Noteholder to make any such endorsement or assignment to holders of the
Senior Indebtedness, the Agent, or any person designated by it, is hereby
irrevocably authorized to make the same.
Section 9.8. Term
The provisions of this Section 9 constitute a continuing
agreement of subordination and shall remain in effect until the Senior
Indebtedness has been indefeasibly paid and satisfied in full and either the
Loan Agreement has been terminated in writing by the holders of the Senior
Indebtedness or the rights of the Borrower to receive loans or extension of
credit under the Loan Agreement have been terminated; provided, however, that
this Subordinated Note shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Senior
Indebtedness is rescinded or must otherwise be restored by any Person upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower
and/or any of its Subsidiaries or otherwise. Subject to the obligations of the
Noteholder hereunder, nothing herein shall be deemed to limit or diminish in any
manner any rights and remedies available to the Noteholder with respect to any
other creditors (other than the Agent or the Lenders), indebtedness, liabilities
or obligations of the Borrower (other than the Senior Indebtedness).
Section 9.9. Additional Agreements in Favor of the Holders of
Senior Indebtedness
The Agent and the Lenders, or any of them, at any time and
from time to time, may enter into such agreement or agreements with the Borrower
or any of its Subsidiaries as the holders of the Senior Indebtedness, or any of
them, may deem proper extending the time of payment of or renewing, modifying,
amending or otherwise altering the terms of all or any of the Senior
Indebtedness, or affecting the security underlying any or all of the Senior
Indebtedness, or may exchange, sell, release, surrender or otherwise deal with
any such security, without in any way impairing or affecting the effectiveness
of the subordination provisions contained in this Section 9.
Section 9.10 Noteholder's Waivers
All of the Senior Indebtedness shall be deemed to have been
made or incurred in reliance upon the subordination provisions contained in this
Section 9, and Noteholder expressly waives all notice of the acceptance by the
holders of the Senior Indebtedness of the subordination and other provisions of
this Subordinated Note, all other notices whatsoever, and reliance by the
holders of the Senior Indebtedness upon the subordination and other agreement as
herein provided. By its acceptance of this Subordinated Note, the Noteholder
agrees that: (a) no holder of the Senior Indebtedness has made any warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Loan Agreement or the other Loan
Documents, or the collectibility of the Senior Indebtedness; (b) the holders of
the Senior Indebtedness shall be entitled to manage and supervise the loans and
other extensions of credit from the holders of the Senior Indebtedness in the
Borrower in accordance with their usual practices, modified form time to time
-6-
<PAGE>
as they deem appropriate under the circumstances without regard to the existence
of any rights that Noteholder may now or hereafter have in or to any of the
assets of the Borrower; and (c) no holder of the Senior Indebtedness shall have
any liability to Noteholder for, and Noteholder waives any claim which it may
now or hereafter have against the holders of the Senior Indebtedness, or any of
them, arising out of, any and all actions which the holders of the Senior
Indebtedness, in good faith, take or omit to take (including, without
limitation, actions with respect to the creation, perfection or continuation of
liens or security interests in the Collateral, actions with respect to the
occurrence of an Event of Default (as defined in the Loan Agreement), actions
with respect to the foreclosure upon, sale of, release of, depreciation of or
failure to realize upon, any of the Collateral and actions with respect to the
collection of any claim for all or any part of the Senior Indebtedness from any
account debtor, guarantor or any other party) with respect to the Loan Agreement
or the other Loan Documents or the collection of the Senior Indebtedness or the
valuation, use, protection or release or the Collateral.
Section 9.11. Subordination Rights Not Impaired by Acts or
Omissions of the Borrower or Holders or Senior Indebtedness.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination provisions contained in this Section 9
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Borrower or its Subsidiaries or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Borrower
with the terms of this Subordinated Note, regardless of any knowledge thereof
which any such holder may have or be otherwise charged with. The holders of the
Senior Indebtedness may extend, renew, modify, or amend the terms of the Senior
Indebtedness or any security therefore and release, sell or exchange such
security or otherwise deal freely with the Borrower, all without affecting the
liabilities and obligations of the Noteholders to the holders of the Senior
Indebtedness.
Section 9.12. Application of Payment
All payments received by the holders of the Senior
Indebtedness, or any of them, from the Borrower may be applied and reapplied, in
whole or in part, to any of the Senior Indebtedness, as the holders of the
Senior Indebtedness, as the case may be, in their sole discretion, deem
appropriate.
-7-
<PAGE>
Section 9.13. Definitions.
When used in this Note, the following terms shall have the
following respective meanings.
"Agent" shall mean Bank Austria Creditanstalt Corporate
Finance, Inc., in its capacity as agent for such Lenders under the Loan
Agreement, together with any successor or replacement agent or any co-agent
under the Loan Agreement.
"Collateral" shall have the meaning ascribed to it in the Loan
Agreement.
"Indebtedness" shall mean, as applied to the Borrower, (a) all
indebtedness, obligations or other liabilities, contingent or otherwise for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, and any accrued interest, fees and charges
relating thereto, under profit payment agreements or similar agreements or
capital lease obligations; and (b) all indebtedness, obligations or other
liabilities of such Person or others secured by a lien on any property of such
Person, whether or not such indebtedness, obligations or liabilities are assumed
by such Person, all as of such time.
"LC Issuer" shall have the meaning ascribed to such term in
the Loan Agreement.
"Lenders" shall have the meaning ascribed to such term in the
Loan Agreement.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrances, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security increase under the UCC or comparable law of any
jurisdiction).
"Loan Agreement" shall mean that certain Amended and Restated
Loan and Security Agreement dated the date hereof, among the Borrower, certain
of its subsidiaries, the LC Issuer, the Lenders and the Agent, as heretofore,
now or hereafter renewed, amended, modified, supplemented and/or restated or any
loan agreement entered into by the Borrower that supercedes and replaces the
Loan Agreement.
"Loan Documents" shall mean any other instrument, document and
agreement form time to time entered into by the Borrower or any of its
Subsidiaries pursuant to or in connection with the Loan Agreement or any other
Loan Document.
"Person" shall mean and include any individuals, sole
proprietorship, partnership, joint venture, limited liability company, trust,
unincorporated organization, association, Borrower, institution, entity, party
or government (whether national, federal, state, county, city, municipal, or
-8-
<PAGE>
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Senior Indebtedness" shall mean any and all indebtedness,
liabilities and obligations of the Borrower or any of its Subsidiaries of every
kind and nature (including, without limitation, principal, interest, charges,
expenses, attorneys' fees and other sums chargeable to the Borrower or any of
its Subsidiaries and future advances made to or for the benefit of the Borrower
or any of its Subsidiaries including any interest that accrues during any
proceeding under the Bankruptcy Code of 1978, as amended, whether or not such
interest is allowed as a claim in such proceeding) owed or owing to Agent, the
LC Issuer or any Lender arising under the Loan Agreement, or arising pursuant to
any of the Loan Documents, or acquired from Agent by any holder of the Senior
Indebtedness from any other source, guaranty, Indemnification, interest rate
swap, cap, collar or similar interest rate hedge agreement or in any other
manner, in each case whether direct or indirect, absolute or contingent, primary
or secondary, due or to become due, now existing or hereafter acquired or
arising.
"Subordinated Indebtedness" shall mean Indebtedness of the
Borrower that has been subordinated to the Senior Indebtedness under the Loan
Agreement or successor or replacement senior credit agreement.
"Subordinated Obligations" shall mean any and all monies which
may now or hereafter be owing by Borrower or any of its Subsidiaries to a Holder
under or arising from this Note, principal or interest, due or not due, direct
or indirect, absolute or contingent, primary or secondary, now existing or
hereafter acquired or arising.
"Subsidiary" shall mean any Person, of which more than fifty
percent (50%) of the outstanding shares of capital stock or other ownership
interest having ordinary voting power to elect a majority of the board of
directors of such Borrower or similar governing body of such other Person
(irrespective of whether or not at the time stock or other ownership interests
of any other class or classes of such other Person shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Borrower or by one or more
"Subsidiaries" of the Borrower.
10. BINDING EFFECT. This Note shall be binding upon and inure
to the benefit of Borrower and the Holder and their respective successors,
assigns, heirs and personal representatives, provided, however, that no
obligations of the Borrower hereunder can be assigned without prior written
consent of the Holder.
11. CONVERSION
Section 11.1. Conversion. On or after the date which is one
year of the date hereof, and prior to the maturity of this Note or, if sooner,
the Redemption Date (as hereinafter defined), the holder of this Note shall have
the right, at the option of such holder (whether or not payment upon this Note
is prohibited by the subordination provisions of Section 9) to convert, subject
to the terms and provisions of this Section 11, all of the principal evidenced
by this Note held by such holder,
-9-
<PAGE>
together with all accrued interest thereon into the number of fully paid and
nonassessable shares (the "Shares") of common stock, par value $.001 per share
("Common Stock"), of the Company as shall be equal to the aggregate principal
amount of this Note, together with all accrued interest thereon, divided by the
Conversion Price (as defined below) then in effect, by delivery of this Note to
the Company at the business address of the Company; provided, that the Company
shall not be required to issue any fractional shares in connection with any
conversion pursuant to this Section 11. Each such conversion shall be made as
specified hereunder and in accordance with the procedures and form of conversion
notice ("Conversion Notice") set out in Exhibit A.
Section 11.2. Delivery of Stock Certificates; Time Conversion
Effective; No Adjustment for Interest or Dividends. As promptly as practicable
after the receipt of a Conversion Notice from the holder of this Note (and in
any case within three Trading Days (as defined below) after the Conversion Date
(as defined below)), the Company shall deliver or cause to be delivered to or
upon the written order of the holder of this Note so surrendered, certificates
representing the number of fully paid and nonassessable Shares into which this
Note is being converted. Subject to the following provisions of this Section
11.2, such conversion shall be deemed to have been made at the close of business
on the date of the Company's receipt of a properly completed and duly executed
Conversion Notice (the "Conversion Date"), so that the rights of the holder of
this Note as a holder thereof, shall cease at such time and the person or
persons entitled to receive any of the Shares upon conversion of this Note shall
be treated for all purposes as having become the record holder or holders of
such Shares at such time; provided, however, that no such surrender on any date
when the stock transfer books of the Company shall be closed, shall be effective
to constitute the person or persons entitled to receive Shares upon such
conversion as the record holder or holders of such Shares on such date, but such
surrender shall be effective to constitute the person or persons entitled to
receive such Shares as the record holder or holders thereof for all purposes at
the close of business on the next succeeding day on which such stock transfer
books are open or the Company is required to convert this Note. If such
certificate or certificates are not delivered to or as directed by the
applicable holder on or before the fourth (4th) Trading Day after the Conversion
Date, the Company shall pay to such holder, in cash, as liquidated damages, in
addition to any and all other remedies given hereunder or now or hereafter
existing at law or equity, $250 for each Trading Day after such fourth Trading
Day until the Trading Day that the certificate or certificates are delivered to
or as directed by the applicable holder of this Note.
If the day for the exercise of the conversion right shall not
be a Trading Day, then such conversion right will automatically be deemed to be
exercised on the next succeeding day which is a Trading Day.
Section 11.3. Adjustment of Conversion Price. The Conversion
Price shall be subject to adjustment as of the Conversion Date as follows:
(a) In case the Company shall, after the date hereof,
(i) pay a stock dividend or make a distribution in shares of its capital stock
(whether shares of its Common Stock or of capital stock of any other class),
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, (iv) issue
by reclassification of its shares of Common Stock any shares of capital stock of
the Company, or (v)
-10-
<PAGE>
issue shares of Common Stock for a price lower than the Closing Price of Common
Stock on the first Trading Day after the Effective Time (except pursuant to any
stock option plan or restricted stock plan in effect at the Effective Time), the
Conversion Price in effect immediately prior to such action shall be adjusted so
that the holder of a Note thereafter surrendered for conversion shall be
entitled to receive an equivalent number of shares of capital stock of the
Company which he would have owned immediately following such action had such
Note been converted immediately prior thereto. Any adjustment made pursuant to
this subsection (a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) In any case in which this Section 11.3 shall
require that an adjustment be made immediately following a record date or an
effective date, the Company may elect to defer (but only until five Business
Days following the mailing by the Company to the holder of this Note of the
certificate required by subsection (d) of this Section 11.3) issuing to the
holder of this Note converted after such record date or effective date the
shares of Common Stock issuable upon such conversion over and above the shares
of Common Stock issuable upon such conversion on the basis of the Conversion
Price prior to adjustment, and paying to such holder any amount of cash in
lieu of a fractional share.
(c) No adjustment in the Conversion Price shall be
required to be made unless such adjustment would require an increase or decrease
of at least one percent (1%) in such price; provided, however, that any
adjustments which by reason of this subsection (g) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11.3 shall be made to the nearest cent.
(d) Whenever the Conversion Price is adjusted as
provided in Section 11.3(a) herein, the Company will promptly mail to the holder
of the Note, a certificate of the Company's Treasurer or Chief Financial Officer
setting forth the Conversion Price as so adjusted and a brief statement of facts
accounting for such adjustment.
(e) Irrespective of any adjustment or change in the
Conversion Price and the number of Shares actually purchasable under the Note,
the Note theretofore and thereafter issued may continue to express the
Conversion Price per Share and the number of Shares purchasable thereunder as
the Conversion Price per Share and the number of Shares purchasable as expressed
in the Note when initially issued.
Section 11.4. Company's Consolidation or Merger. If the
Company shall at any time consolidate or merge with and into another
corporation, (a) the Company shall give at least twenty (20) days prior written
notice to the holder of the Note of such consolidation or merger and the terms
thereof, and (b) the holder of a Convertible Note shall thereafter be entitled
to receive, upon the conversion thereof, the securities or property to which a
holder of the number of Shares then deliverable upon the conversion thereof
would have been entitled upon such consolidation or merger, and the Company
shall take such steps in connection with such consolidation or merger as may be
necessary to assure such holder that the provisions of this Note shall
thereafter be applicable, as nearly as reasonably may be in relation to any
securities or property thereafter deliverable upon the
-11-
<PAGE>
conversion of the Note including, but not limited to, obtaining a written
acknowledgment from the continuing corporation or other appropriate corporation
of its obligation to supply such securities or property upon such conversion and
to honor the obligations under this Note. A sale of all or substantially all the
assets of the Company shall be deemed a consolidation or merger for the
foregoing purposes.
Section 11.5. Reserve of Sufficient Shares. The Company will
reserve and keep available a sufficient number of shares of its Common Stock to
satisfy the conversion requirements of this Note. The Company will take all such
action as may be necessary to insure that all Shares issued upon conversion of
this Note will be duly and validly authorized and issued and fully paid and
nonassessable.
Section 11.6. Taxes on Conversion. The issuance of
certificates for Shares upon the conversion of the Note shall be made without
charge to the holder of this Note converting the Note for any issue or stamp tax
in respect of the issuance of such certificates, and such certificates shall be
issued in the respective names of, or in such names as may be directed by, the
holder of the Note converted; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate in a name other than that
of the holder of this Note converted, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
Section 11.7. Notice to the Holder of Note. In case at any
time:
(a) the Company shall take any action which would
require an adjustment in the Conversion Price pursuant to Section 11.4(a); or
(b) there shall be any capital reorganization or
reclassification of the Common Stock (other than a change in par value or from
par value to no par value or from no par value to par value of the Common
Stock), whether or not such reorganization or reclassification results in an
adjustment in the Conversion Price, or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the Company is
required, or any sale or transfer of all or substantially all of the assets of
the Company; or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the Holder of the Note, not less than twenty (20) days before any record date or
other date set for definitive action, of the date on which such adjustment,
distribution, reorganization, reclassification, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the current Conversion Price and the kind and amount of the Shares and other
securities and property deliverable upon conversion of the Note. Such notice
shall
-12-
<PAGE>
also specify the date as of which the holders of the Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such adjustment, distribution, reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation or
winding up, as the case may be (on which date, in the event of voluntary or
involuntary dissolution, liquidation or winding up of the Company, the right to
convert the Note into Shares shall terminate).
Without limiting the obligation of the Company to provide notice to the
Holders of this Note or Shares of corporate action hereunder, it is agreed that
failure of the Company to give such notice shall not invalidate such corporate
action of the Company.
Section 11.8. Definitions
When used in this Sections 11 or 12, the following terms shall
have the following respective meanings:
Closing Price: means (i) the last reported sale price as
reported on the American Stock Exchange or any successor principal National
securities exchange on which the Common Stock is listed or admitted to trading,
or (ii) if the Common Stock is not listed or admitted to trading on the American
Stock Exchange or any other national securities exchange or on the NASDAQ
National Market System, the average of the highest reported bid and lowest
reported asked price as furnished by NASDAQ, the National Quotation Bureau,
Inc., or comparable system or organization, or (iii) in the absence of any of
the foregoing, the fair market value as determined in good faith by the Board of
Directors of the Company (which determination shall be conclusive).
Conversion Price: means to the greater of (x) the Closing
Price of Common Stock on the first trading day after the Effective Time (as
defined in the Merger Agreement) and (y) 90% of the average closing price of
Common Stock for the 20 Trading Days next preceding the conversion date, as the
same may be adjusted from time to time in accordance with the terms of this
Note.
Merger Agreement: shall mean the Agreement and Plan of Merger,
dated as of April 12, 1999, among Saratoga Resources, Inc., PrimeVision Health,
Inc., OptiCare Eye Health Centers, Inc., PrimeVision Shellco Merger Corporation
and OptiCare Shellco Merger Corporation.
Redemption Price: means the principal amount of the Note then
being redeemed or repaid together with all accrued interest on the unpaid
principal amount hereof.
Trading Day: means (a) a day on which the Common Stock is
traded on the American Stock Exchange or other stock exchange or market on which
the Common Stock is then listed, or (b) if the Common Stock is not listed on the
American Stock Exchange or any stock exchange or market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
that in the event that the Common Stock is not listed or quoted as set forth in
(a), (b) and (c) hereof, then Trading Day shall mean any day except Saturday,
-13-
<PAGE>
Sunday and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
Section 11.9 Registration Rights.
The Shares into which this Note may be converted shall possess
the same registration rights that are afforded to the common stock issued or to
be issued to the Lenders (as defined in Section 9 hereof) in connection with the
Loan Documents (as defined in Section 9 hereof). Notwithstanding anything to the
contrary above if a registration of securities of the Company involves an
underwritten offering and the managing underwriter advises the Company in
writing that, in its opinion, the number of securities requested to be included
in such registration exceeds the number of securities which would have a
material adverse effect on such offering, including the price at which such
shares can be sold, all securities proposed to be registered by the Lenders
pursuant to the terms of the Loan Documents shall have priority over the
registration of all securities proposed to be registered by the holders of this
Note.
12. MANDATORY REDEMPTION OF CONVERTIBLE NOTES BY THE COMPANY.
The Company shall not directly or indirectly, call, prepay,
redeem, or repurchase, any this Note or any portion thereof prior to the
Maturity Date, except as set forth in this Section 12.
Section 12.1. Mandatory Redemption by the Company. (a) The
Company shall redeem, subject to the provisions contained in Section 9 hereof
and limited to proceeds received by the Company pursuant to Section 2.13 of the
Loan Agreement, this Note (if not converted) at the Redemption Price therefor
pursuant to the terms of this Section 12 to the extent that the Company raises
net proceeds in the aggregate from the public or private sales of common stock
or Convertible Securities of the Company at any time and from time to time after
the date hereof in an amount in excess of $3,000,000. It is understood that the
first $3,000,000 of net proceeds from such sales of common stock or Convertible
Securities received within 180 days of the date hereof shall first be paid to
the Lenders pursuant to the terms of the Loan Agreement. In addition, it is
understood that the first half of net proceeds from such sales of common stock
or Convertible Securities received after 180 days of the date hereof shall first
be paid to the Lenders pursuant to the terms of the Loan Agreement.
Notwithstanding anything to the contrary contained herein, in the event that the
Holder of this Note has the right to convert this Note into shares of Common
Stock pursuant to the provisions of Section 11 hereof when the Holder of this
Note receives the Redemption Notice, then the Holder may exercise such right of
conversion by delivery of a Conversion Notice to the Company within three
Trading Days after its receipt of such Redemption Notice. For purposes of this
Article 12, the term "Convertible Securities" shall mean any debt or other
security convertible into common stock, which (i) is subordinated to at least
the same extent as such Subordinated Obligations to the payment of all Senior
Indebtedness then outstanding and which, in any case, does not mature or become
subject to a mandatory redemption obligation prior to six months after the
maturity of such Senior Indebtedness (ii) has terms substantially as favorable
to the Borrower as the terms under this Note and (iii) shall pay interest in
kind or bear interest at a rate of and be payable at a frequency not greater
than that required by this Note.
-14-
<PAGE>
Section 12.2. Notice of Redemption. The Company shall redeem
this Note pursuant to Section 12.1 by giving notice of such redemption (the
"Redemption Notice"), by personal delivery, overnight courier, certified mail or
by facsimile, signed by an authorized officer, to the Holders of the Notes, not
less than ten (10) days prior to the date upon which the redemption is to be
made (the "Redemption Date"). The Redemption Notice shall specify (i) the
aggregate principal amount of the Note to be redeemed, (ii) the date of such
redemption, and (iii) the Redemption Price, if applicable.
Section 12.3. Partial Redemption. In the event of a partial
redemption by the Company pursuant to this Article 12, the aggregate principal
amount of each redemption of Note pursuant to Section 12.1 hereof, shall be
allocated among the Holders of the Notes at the time outstanding, in proportion,
as nearly as practicable, to the respective unpaid principal amounts of such
Notes. Any redemption required to be made hereunder which cannot be made in
full, or which can be made only in part, shall be made on such date to the
extent possible, and the balance thereof shall be made as soon as permitted
thereafter.
Section 12.4. Surrender of Notes Upon Redemption. In the event
that any Notes shall be redeemed by the Company as provided in this Article 12,
interest shall cease to accrue upon such Notes so redeemed.
13. GENERAL. Time is of the essence of this Note. In the
event this Note, or any part thereof, is collected by or through an
attorney-in-law, Borrower agrees to pay all costs of collection including, but
not limited to, reasonable attorneys' fees.
Presentment for payment, demand, protest and notice of demand,
protest and nonpayment, and all other notices are hereby waived by Borrower. No
failure to accelerate the debt evidenced hereby by reason of default hereunder,
acceptance of a past due installment, or indulgences granted from time to time
shall be construed (i) as a novation of this Note or as a reinstatement of the
indebtedness evidenced hereby or as a waiver of such right of acceleration or of
the right of the Holder thereafter to insist upon strict compliance with the
terms of this Note or (ii) to prevent the exercise of such right of acceleration
or any other right granted hereunder or by applicable law; and Borrower hereby
expressly waives the benefit of any statute or rule of law or equity now
provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the
payment of this Note shall operate to release, discharge, modify, change, or
affect the original liability of Borrower under this Note, either in whole or in
part unless the Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, or discharge is sought.
To the extent permitted by law, Borrower hereby waives and
renounces for itself, its successors and assigns, all rights to the benefits of
any moratorium, reinstatement, marshaling, forbearance, valuation, stay,
extension, redemption, appraisement exemption, and homestead now provided, or
which may hereafter be provided by the Constitution and laws of the United
States of America and of any state thereof, both as to itself and in and to all
of its property, real and personal, against the enforcement and collection of
the obligations evidenced by this Note.
-15-
<PAGE>
If for any reason whatsoever fulfillment of any provision of
this Note, at the time performance of such provision shall be due, shall involve
transcending the limit of validity presently prescribed by any applicable usury
statute or any other applicable law, with regard to obligations of like
character and amount, then, ipso facto, the obligations to be fulfilled shall be
reduced to the limit of such validity, so that in no event shall any exaction be
possible under this Note or under any other instrument evidencing or securing
the indebtedness evidenced hereby, that is in excess of the current limit of
such validity, but such obligation shall be fulfilled to the limit of such
validity.
It is possible that remedies at law may be inadequate and,
therefore, the Borrower shall be entitled to equitable relief including, without
limitation, injunctive relief, specific performance or other equitable remedies
in addition to all other remedies provided hereunder or available to the
Borrower at law or in equity.
This Note shall be construed and enforced in accordance with
the substantive laws of the State of New York, without regard to any contrary
conflict of laws rules of the State of New York.
-16-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be
signed by its duly authorized officer.
OPTICARE HEALTH SYSTEMS, INC.
(F/K/A SARATOGA RESOURCES, INC.)
By: /s/ Thomas F. Cooke
-----------------------------------
Name:
Title:
AGREED WITH RESPECT TO
SECTION 9 HEREOF BY:
Marlin Capital L.P.
By: Marlin Holdings, Inc.
General Partner
By: /s/ Ian Ashken
-----------------------------
Name: Ian Ashken
Title: Vice Chairman
-17-
<PAGE>
EXHIBIT A
CONVERSION NOTICE
OptiCare Health Systems, Inc.
870 Grandview Avenue
Waterbury, CT 06708
Attn: Steven Ditman
Re: OptiCare Health Systems, Inc. (the "Company") Convertible Note
The undersigned hereby elects to convert the principal amount
of the Convertible Note of the Company indicated below into shares of Common
Stock, par value $.001 per share of the Company, as of the following date:
Date to Effect Conversion:
Principal amount of
Convertible Notes being Converted:
Conversion Price (calculated as follows):
Number of shares of Common Stock to be received:
Delivery Instructions:
Certificates to be
issued in the name of:
Certificates to be
delivered to:
Date:__________________ __________________________________
Authorized signature of Registered Holder
Acknowledged and Confirmed:
OptiCare Health Systems, Inc.
By:_________________________
Name:
-18-
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of 12:01 a.m. October 1, 1999, among OPTICARE
HEALTH SYSTEMS, INC., a Delaware corporation having its principal office at 87
Grandview Avenue, Waterbury, Connecticut 06708 ("Purchaser"), and STEPHEN COHEN,
an individual resident of Indian Rocks Beach, Florida ("Cohen"), ROBERT AIROLA,
an individual resident of Dunedin, Florida ("Airola"), GERALD MANDELL, an
individual resident of Toronto, Canada ("Mandel"), and REGINALD WESTBROOK, an
individual resident of Indian Rocks Beach, Florida ("Westbrook", Westbrook,
Cohen, Arola and Mandel, individually; or "Seller" and collectively, the
"Sellers").
RECITALS
Sellers own all of the issued and outstanding shares (the "Shares")
of capital stock of Cohen Systems, Inc. d/b/a/ CC Systems, a Florida corporation
(the "Company") as set forth on Exhibit A.
Sellers desire to sell to Purchaser and Purchaser desires to
purchase from Sellers the Shares, all on the terms and subject to the conditions
contained in the Agreement.
In consideration of the mutual covenants and agreements hereinafter
set forth, the parties hereby agree as follows:
1. Purchase and Sale of Shares.
Subject to and upon the terms and conditions set forth in this
Agreement at the Closing hereunder, Sellers shall sell, transfer, convey, assign
and deliver the Shares to Purchaser and Purchaser shall purchase the Shares from
Sellers.
2. Purchase Price.
In consideration of the sale, transfer, conveyance, assignment
and delivery of the Shares by Sellers to Purchaser, and in reliance upon the
representations and warranties made herein by Sellers and the covenants not to
compete, Purchaser will pay and Sellers shall accept the following as full and
complete payment thereof (collectively, the "Purchase Price"):
1.
<PAGE>
(a) Base Purchase Price. Purchaser shall pay to Sellers a base
purchase price (the "Base Purchase Price"), subject to adjustment as provided
below, payable as follows:
(i) Delivery of One Hundred Ten Thousand (110,000)
shares of common stock of Purchaser (the "New Stock"), such
number of shares to be allocated among Sellers according to
the percentage ownership ("Percentage Interests") of each
Seller set forth opposite their respective names on Exhibit A
and rounded down to the nearest whole number to avoid
fractional shares, which shall be held in escrow by
Purchaser's attorneys, Bergman, Horowitz & Reynolds, P.C.,
until January 3, 2000 pursuant to the terms of an escrow
agreement in the form of Exhibit H annexed hereto;
(ii) By payment of Five Hundred Thousand Dollars
($500,000), without interest, to Sellers (allocated among the
Sellers according to their Percentage Interests) as follows:
(1) $100,000 on January 3, 2000;
(2) $100,000 on February 1, 2000;
(3) $150,000 on March 31, 2000;
(4) $ 50,000 on June 30, 2000; and
(5) $100,000 on October 30, 2000.
(iii) By delivery of a promissory note in the principal
amount of $100,000 (the "Note") to Sellers in the form of
Exhibit B in consideration of their covenants not to compete;
(iv) By payment of the additional sum of $150,000,
without interest, to Sellers (allocated among the Sellers
according to their Percentage Interests) for their covenants
not to compete by paying $100,000 on October 30, 2000 and
$50,000 on October 1, 2001.
2.
<PAGE>
(b) Additional Purchase Price.
(i) In addition to the Base Purchase Price, the
Purchaser shall pay to Sellers $200,000 (allocated among the
Sellers according to their Percentage Interests) (the
"Additional Purchase Price") as additional consideration for
the Shares in the event EBITDA (defined as earnings before
interest, taxes, depreciation and amortization as shall be
determined in accordance with generally accepted accounting
principles by Purchaser's regularly employed accountants) from
the operation of the Company for the twelve (12) month period
after the Closing equals or exceeds $400,000 ("Post-Closing
EBITDA"). Purchaser shall allocate a reasonable amount of the
Purchaser's general administrative costs consistent with the
Purchaser's practices for its subsidiaries. All compensation
paid to Stephen Cohen under his Employment Agreement shall be
allocated at a cost to the Company. The Additional Purchase
Price, if any, shall be payable $100,000 on October 31, 2000
and $100,000 on April 30, 2001.
(ii) Purchaser shall no later than twenty (20) days
after the twelve month period after the Closing provide
Sellers with a written calculation of the Post-Closing EBITDA.
The Post-Closing EBITDA calculation shall be presumptively
conclusive and binding absent manifest error. If the Sellers
shall object in writing to the calculation within ten (10)
days and specifies the basis of any objection, the Sellers and
their accountants shall have the right to audit, at Sellers'
expense, the Purchaser's books and record with respect to the
Company's business. If the Sellers do not timely object in
writing, then the Purchaser's calculation of Post-Closing
EBITDA shall be final and binding. Following such audit, the
Purchaser and the Sellers shall attempt in good faith to
resolve their differences regarding said calculation. In the
event they are unable to resolve their differences within
sixty (60) days from the date of Sellers' written objection,
the matter may be submitted to, and the Post-Closing EBITDA
shall be determined by, arbitration in accordance with Section
19 below.
3.
<PAGE>
(c) Adjustment to Purchase Price. The Purchase Price shall be
decreased to the extent that the total current assets of the Company as of the
Closing Date, less inventory, total liabilities (including taxes not yet due and
payable) and accounts receivables of the Company not actually collected within
the twelve (12) month period after the Closing is less than Five Hundred
Thousand Dollars ($500,000) (the "Adjustment Amount"). Purchaser shall no later
than twenty (20) days after the twelve (12) month period after the Closing
provide Sellers with a written calculation of the Adjustment Amount. The
Adjustment Amount calculation shall be presumptively conclusive and binding
absent manifest error. Purchaser shall have a right to set-off the Adjustment
Amount against any payments required pursuant to Section 2(a)(ii). If the
Sellers shall object in writing to the calculation within ten (10) days and
specifies the basis of any objection, the Sellers and their accountants shall
have the right to audit, at Sellers' expense, the Purchaser's books and record
with respect to the Company's business. If the Sellers do not timely object in
writing, then the Purchaser's calculation of the Adjustment Amount shall be
final and binding. Following such audit, the Purchaser and the Sellers shall
attempt in good faith to resolve their differences regarding said calculation.
In the event they are unable to resolve their differences within sixty (60) days
from the date of Sellers' written objection, the matter may be submitted to, and
the Adjustment Amount shall be determined by, arbitration in accordance with
Section 19 below.
(d) Cross Default. A default in the payment of any obligation
under Section 2(a)(ii) shall be a default in every other payment due under such
Section.
3. Closing. The Closing shall take place no later than October 1,
1999 at 5:00 P.M. at the offices of Bergman, Horowitz & Reynolds, P.C., or at
such other time and place as the parties may agree. The effective date and time
of the Closing shall be 12.01 A.M., October 1, 1999. The day on which the
Closing actually takes place is herein sometimes referred to as the Closing
Date.
4. Sellers' Obligations at Closing; Further Assurances.
(a) At the Closing, Sellers shall deliver to Purchaser:
(i) all Schedules attached to this Agreement updated to
the Closing Date;
4.
<PAGE>
(ii) Certificates representing the Shares, duly endorsed
(or accompanied by duly executed stock powers);
(iii) such other good and sufficient instruments of
conveyance, assignment and transfer, in form and substance
reasonably satisfactory to Purchaser's counsel, as shall be
effective to vest in Purchaser good and marketable title to
the Shares;
(iv) a real estate lease in form and substance
reasonably acceptable to Purchaser relating to the Company's
facilities in Largo, Florida, which lease shall provide for a
five year term with two five year options at an annual gross
rental equal to $9 per foot plus utilities for the first five
year term;
(v) a release and estoppel certificate in form and
substance reasonably acceptable to Purchaser relating to a
related party condominium located in Canada;
(vi) a lock-up agreement in form and substance
reasonably acceptable to Purchaser relating to the New Stock
and providing that Sellers may not sell the New Stock for one
(1) year after Closing;
(vii) those agreements referenced in Section 9, 10 and
11;
(viii) the Pledge Agreement referenced in Section 16(g);
and
(ix) all other documents required to be delivered to
Purchaser under the provisions of this Agreement and pursuant
to the Closing Agenda annexed hereto as Exhibit C.
(b) At any time and from time to time after the Closing, at
Purchaser's request and without further consideration, Sellers shall execute and
deliver such other reasonable instruments of sale, transfer, conveyance,
assignment and confirmation and take such reasonable action as Purchaser may
reasonably deem necessary or desirable in order to confirm Purchaser's title to
the Shares and to more effectively transfer, convey and assign to the Company,
and to confirm the Company's title to its properties and assets.
5.
<PAGE>
5. Representations and Warranties by Sellers. Sellers jointly and
severally represent and warrant to Purchaser as follows:
(a) Organization, Standing and Qualification. The Company is
corporation duly organized, validly existing and in good standing under the laws
of Florida, has all requisite corporate power and authority and is entitled to
carry on its businesses as now being conducted and to own, lease or operate its
properties as and in the places where such businesses are now conducted and such
properties are now owned, leased or operated. Sellers have delivered to
Purchaser true and complete copies of the Company's Articles of incorporation
and all amendments thereto, the by-laws of the Company as presently in effect,
and all minutes of meetings of the Company's shareholders and directors,
certified as true, correct and complete by the Company's Secretary.
(b) Subsidiaries. The Company has no subsidiaries. The Company
has no interest, direct or indirect, and have no commitment to purchase any
interest, direct or indirect, in any other corporation or in any partnership,
joint venture or other business enterprise or entity.
(c) Capitalization. The authorized capital stock of the
Company consists of one hundred (100) shares of common stock, par value $1.00
per share of which one hundred (100) shares are issued and outstanding. All of
the Shares were duly authorized and validly issued and are fully paid and
nonassessable and are free of any liens or encumbrances created by or resulting
from the actions of the Company, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of the Company or any agreement to which the Company is a party or by
which it is bound. All of the Shares were issued in compliance with all
applicable federal and state securities laws. There are no shares of capital
stock of the Company issued or outstanding, other than the Shares; and there are
no outstanding options, warrants, rights, contracts, agreements, commitments,
understandings or arrangements by which the Company may be bound or obligated to
issue any additional shares of its capital stock or any security convertible
thereto or exchangeable therefore or to repurchase any outstanding Shares. There
are no amounts owed to any person by the Company as a result of any repurchase
or redemption by the Company of its common stock.
(d) Ownership of the Company's Capital Stock. Each of the
Sellers is the lawful record and beneficial owner of the number of shares of the
Company's capital stock set opposite his
6.
<PAGE>
name on Exhibit A, and all of such shares are validly issued and outstanding,
fully paid and nonassessable. Sellers own all the Shares free and clear of all
liens, encumbrances, rights, charges and assessments of every nature and no such
Shares are subject to any restriction on transferability. Sellers have not
granted any option, warrant or right to purchase or acquire any of the Shares
nor have Sellers entered into any contract, agreement, commitment, understanding
or arrangement relating to the Shares, or by which Sellers are or may be bound
or obligated to transfer or dispose of any of the Shares. There are no
outstanding proxies, shareholders' agreements, voting trusts or other agreements
of any kind whatsoever restricting, controlling, directing or otherwise
affecting the voting of the Shares.
(e) Transactions with Certain Persons. The Company does not
owe any amount to, or have any contract with or commitment to, any of its
shareholders, directors, officers, employees or consultants (other than
compensation for current services not yet due and payable and reimbursement of
expenses arising in the ordinary course of business), and none of such persons
owes any amount to the Company.
(f) Execution, Delivery and Performance of Agreement;
Authority. Neither the execution, delivery nor performance of this Agreement by
Sellers will, with or without the giving of notice or the passage of time, or
both, conflict with, result in a default, right to accelerate or loss of rights
under, or result in, cause or create any liability, reassessment or revaluation
of assets, lien, charge or encumbrance pursuant to, any provision of the
Company's Articles of incorporation or by-laws or any franchise, mortgage, deed
of trust, lease, license, agreement, understanding, law, ordinance, rule,
regulation, order, judgment, decree or other legal or contractual requirement to
which the Company or the Sellers are a party or by which any of them or the
Shares may be bound or affected. Sellers have the full power and authority to
enter into this Agreement and to carry out the transactions contemplated hereby,
and this Agreement constitutes a valid and binding obligation of Sellers,
enforceable against them in accordance with its terms.
(g) Financial Statements. Sellers have delivered to Purchaser
copies (initialed by the Company's President and identified with a reference to
this Section of this Agreement) of the financial statements set forth on
Schedule 5(g) including, without limitation the balance sheet of the Company at
July 31, 1999 (the "Balance Sheet"), and the related statements of operations,
shareholders' equity and cash flows for the fiscal year last ended (hereinafter
collectively called the
7.
<PAGE>
"Financial Statements"), all of which are true, complete and correct, have been
prepared in accordance with generally accepted accounting principles
consistently applied and maintained throughout the periods indicated and fairly
present the financial condition of Seller as at their respective dates and the
results of their operations for the periods covered thereby. Such statements of
earnings do not contain any items of special or nonrecurring income or any other
income not earned in the ordinary course of business except as expressly
specified therein, and such interim financial statements include all
adjustments, which consist only of normal recurring accruals, necessary for such
fair presentation.
(h) Absence of Undisclosed Liabilities. Except as and to the
extent reflected or reserved against on the face of the Balance Sheet (excluding
the notes thereto) or set forth on Schedule 5(h) annexed hereto: (i) the Company
has no debts, liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of any nature whatsoever, including, without limitation, any
foreign or domestic tax liabilities or deferred tax liabilities incurred in
respect of or measured by the Company's income, or any other debts, liabilities
or obligations relating to or arising out of any act, omission, transaction,
circumstance, sale of goods or services, state of facts or other condition which
occurred or existed, whether or not then due or payable; (ii) none of the
Company's employees is now or, will by the passage of time hereafter become,
entitled to receive any vacation time, vacation pay or severance pay
attributable to services rendered prior to the Closing Date which is not to be
paid in full on the Closing Date; and (iii) there has been no material change in
the Balance Sheet ("material" means a liability or change incurred outside the
ordinary course of business).
(i) Taxes. Except as set forth on Schedule 5(i), all taxes,
including, without limitation, income, property, sales, use, franchise, added
value, employees' income withholding and social security taxes, imposed by the
United States or by any state, municipality, subdivision or instrumentality of
the United States, or by any other taxing authority, which are due or payable by
the Company, and all interest and penalties thereon, will be paid in full at the
time of the Closing, all tax returns required to be filed in connection
therewith will be accurately prepared and duly filed at the time of Closing and
all deposits required by law to be made by the Company with respect to
employees' withholding and other taxes will be duly made at the time of Closing.
The Company has not been delinquent in the payment of any tax, assessment or
governmental charge or deposit and have
8.
<PAGE>
no tax deficiency or claim outstanding, proposed or assessed against them, and
there is no basis for any such deficiency or claim. The Company's federal income
tax returns have been filed with the Internal Revenue Service for all of their
fiscal Years through the year ended December 31, 1998. The Company is not
obligated to indemnify any other person for any taxes and has not been part of a
consolidated group at any time.
(j) Absence of Changes or Events. Except as set forth in
Schedule 5(j) annexed hereto, from the date hereof the Company has conducted its
business since July 31, 1999 only in the ordinary course and has not:
(i) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become
due, except current liabilities for trade or business
obligations incurred in connection with the purchase of goods
or services in the ordinary course of business and consistent
with its prior practice, none of which liabilities, in any
case or in the aggregate, materially and adversely affects the
business, liabilities or financial condition of the Company;
(ii) mortgaged, pledged or subjected to lien, charge,
security interest or any other encumbrance or restriction any
of its property, business or assets, tangible or intangible
(iii) received any notice of termination of any contract,
lease or other agreement or suffered any damage, destruction
or loss (whether or not covered by insurance) which, in any
case or in the aggregate, has had a materially adverse effect
on the assets, operations or prospects of the Company;
(iv) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration
payable, or paid or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any shareholder,
director, officer, employee, salesman, distributor or agent of
the Company;
(v) failed to replenish its inventories and supplies in a
normal and customary manner consistent with its prior
practice, or made any purchase
9.
<PAGE>
commitment in excess of the normal, ordinary and usual
requirements of its business or at any price in excess of the
then current market price, or made any change in its selling,
pricing, advertising or personnel practices inconsistent with
its prior practice;
(vi) suffered any change, event or condition which, in
any case or in the aggregate, has had or may have a materially
adverse affect on the Company's condition (financial or
otherwise), properties, assets, liabilities, operations or
prospects, including, without limitation, any change in the
Company's revenues, costs, backlog or relations with its
employees, agents, customers, or suppliers;
(vii) entered into any transaction, contract or
commitment other than in the ordinary course of business or
paid or agreed to pay any brokerage, finder's fee, taxes or
other expenses in connection with, or incurred any severance
pay obligations by reason of, this Agreement or the
transactions contemplated hereby; or
(viii) entered into any agreement or made any commitment
to take any of the types of action described in subparagraphs
(i) through (vii) above.
(k) Litigation. Except as set forth in Schedule 5(k) annexed
hereto, there is no claim, legal action, suit, arbitration, governmental
investigation or other legal or administrative proceeding, nor any order, decree
or judgment in progress, pending or in effect, or to the knowledge of Sellers
threatened, against or relating to the Company, its officers, directors,
shareholders or employees, its properties, assets or business or the
transactions contemplated by this Agreement, and none of the Sellers knows or
has reason to be aware of any basis for the same. Notwithstanding the
disclosures set forth in Schedule 5(k), the Purchaser assumes no liability or
obligation relating to any claim or litigation described therein and Sellers
shall indemnify Purchaser for all liabilities of, or claims against, the Company
arising out of such litigation.
(l) Compliance with Laws and Other Instruments. The Company
has complied with all existing laws, rules, regulations, ordinances, orders,
judgments and decrees now applicable to its businesses, properties or operations
as presently conducted. neither the ownership nor use of the
10.
<PAGE>
Company's properties nor the conduct of its business conflicts with the rights
of any other person, firm or corporation or violates, or with or without the
giving of notice or the passage of time, or both, will violate, conflict with or
result in a default, right to accelerate or loss of rights under, any terms or
provisions of its certificate of incorporation or by-laws as presently in
effect, or any lien, encumbrance, mortgage, deed of trust, lease, license,
agreement, understanding, law, ordinance, rule or regulation, or any order,
judgment or decree to which the Company is a party or by which it may be bound
or affected. The Company has all permits, licenses, franchises and other
authorizations necessary for the conduct of the business of the Company as
currently conducted; all such permits, licenses, franchises, and authorizations
are valid and in full force and effect; and the Company is in compliance with
the material terms and conditions thereof.
(m) Title to Properties. the Company has good and marketable
title to all the properties and assets it owns or uses in its business or
purports to own, including, without limitation, those reflected in its books and
records and in the Balance Sheet (except inventory sold in the ordinary course
of business. Except as set forth on Schedule 5(m), none of such properties and
assets are subject to any mortgage, pledge, lien, charge, security interest,
encumbrance, restriction, lease, license, easement, liability or adverse claim
of any nature whatsoever, direct or indirect, whether accrued, absolute,
contingent or otherwise. All of the properties and assets owned, leased or used
by the Company are in good operating condition and repair, are suitable for the
purposes used, are adequate and sufficient for all current operations of the
Company. Schedule 5(m) describes all material fixed assets of the Company.
(n) Intellectual Property Rights.
(1) Schedule 5(n) sets forth an accurate and complete
description of (i) all foreign and domestic patents, patent applications, patent
rights, trademarks, service marks, trade names, brands and copyrights of the
Company which are registered or issued or for which registration or issuances is
pending with any governmental authority specifying as to each item, as
applicable, the jurisdiction(s) by or in which such patent, trademark or
copyright has been issued or registered or in which an application for such
issuance or registration has been filed or proposed, including the registration
or application number; (ii) all foreign and domestic franchises, licenses,
sublicenses, contracts and agreements pursuant to which any person other than
the Company is
11.
<PAGE>
authorized to use any foreign and domestic patents, patent rights, trademarks,
trade names, service marks, brands, copyrights, and any applications therefor;
(iii) all maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), macros and user and
technical documentation, and tangible or intangible proprietary information or
material (all of the described assets and rights described above in clauses (i),
(ii) and (iii) of this Section 5(n), "Intellectual Property") owned by the
Company; and (iv) all foreign and domestic franchises, licenses, sublicenses,
contracts and agreements pursuant to which the company is authorized to use any
such Intellectual Property not owned by the Company ("Third Party Intellectual
Property Rights") including, with respect to (ii) or (iii), the identify of all
parties thereto, a description of the nature and subject matter thereof, the
royalty provided and the term thereof.
(2) Except as set forth in Schedule 5(n), the Company
owns or has the right to use, pursuant to franchise, license, sublicense,
contract, agreement, or permission, all of the Intellectual Property necessary
for the conduct of its business as currently conducted or as proposed to be
conducted by the Company. All applicable fees, royalties and other amounts due
and payable by the company to any person or to the Company by any person in
respect of such Intellectual Property have been paid. The Company has taken all
necessary and desirable action to maintain and protect the Intellectual Property
that it owns or has the right to use.
(3) Except for third party licenses listed in Schedule
5(n), the Company is the sole and exclusive owner of its Intellectual Property
including, but not limited to, those listed or described in Schedule 5(n), or
has the right to the use thereof for the material covered thereby in connection
with the services or products in respect to which they have been or are now
being used.
(4) Except as set forth in Schedule 5(n), (i) the Company
is not the subject of any pending litigation or, to the Sellers' best knowledge,
any claim regarding infringement of or misappropriation or misuse of any
Intellectual Property of the Company or other tangible right of any other
person, (ii) none of the Sellers after reasonable inquiry has knowledge of any
such infringement, whether or not claimed by any other person, (iii) none of the
Sellers after reasonable inquiry has knowledge of any infringement by any other
person of the Intellectual Property of the Company, and (iv) none of the Sellers
after reasonable inquiry has knowledge of any facts or circumstances which
12.
<PAGE>
would reasonably be anticipated to result in any such litigation or claim or
which would reasonably lead the Company to conclude that the continued operation
and conduct of any aspect of its business would result in any such litigation or
claim. To the best knowledge of the Sellers, except as set forth in Schedule
5(n), there is no other person that is operating under or otherwise using any
name confusingly similar with any trade names, trademarks, service names,
service marks or logos included in the Intellectual Property owned by the
Company. Except as set forth in Schedule 5(n), no Intellectual Property of the
Company is subject to any outstanding order, judgment, decree, stipulation or
agreement restricting the use thereof by the Company. Except as set forth in
Schedule 5(n), the Company has not entered into any agreement to indemnify any
other person against any charge of infringement of any Intellectual Property.
(5) Except as set forth in Schedule 5(n), to the best
knowledge of the Sellers, there has been no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of the
Company, any trade secret material to the Company, or any Intellectual Property
right of any third party to the extent licensed by or through the Company, by
any third party, including any employee or former employee of the Company.
(6) The Company is not nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights.
(7) Except as set forth in Schedule 5(n), no material
trade secrets included in the Intellectual Property of the Company have been
disclosed by the Company to any person other than employee, agents and
representatives of the Company or Purchaser. The Company has taken such
reasonable measures as is appropriate to protect all of its trade secrets,
including securing valid written assignments from all consultants and employees
who contributed to the creation or development of Intellectual Property of the
rights to such contributions that the Company does not already own by operation
of law.
(8) Except for obligations that arise under the common
law of the appropriate jurisdiction, to the best of the Sellers' knowledge,
neither the Company nor its employees has, other than confidentiality and other
agreements assigning inventions made prior to
13.
<PAGE>
their employment with the Company, any written agreements or arrangements with
former employers of such employees relating to trade secrets of such employers,
the assignment of inventions of such employers, or such employee's engagement in
activities competitive with such employers. Except for obligations that arise
under the common law of the appropriate jurisdiction, to the best of the
Sellers' knowledge, the activities of such employees on behalf of the Company do
not violate any agreements or arrangements known to the Company which any such
employees have with former employers.
(o) Material Contracts. Attached hereto as Schedule 5(o) is an
accurate and complete list of:
(i) All contracts, agreements and commitment whether or
not fully performed, in respect of the issuance, sale or
transfer of the capital stock, bonds or other securities of
the Company or pursuant to which the Company has acquired any
substantial portion of their businesses or assets.
(ii) All contracts, agreements, commitments or other
understandings or arrangements to which the Company is a party
or by which it or any of its property is bound or affected but
excluding contracts entered into in the ordinary course of
business which are terminable by the Company on less than 30
days' notice without any penalty or consideration and
involving payments or receipts by the Company of less than
$1,000 in the case of any single contract but not more than
$5,000 in the aggregate.
(iii) Any partnership, joint venture or other similar
contract, arrangement or agreement which has involved or is
expected to involve a capital contribution by the Company or a
sharing of annual revenues of $1,0000 or more.
(iv) Any contract or other document that substantially
limits the freedom of the Company to compete in any line of
business or with any person or in any area or limits the right
of the Company to solicit any customer or which would so limit
the freedom of the Purchaser after the Closing Date.
14.
<PAGE>
(v) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus
plans, deferred compensation agreements, employee pension
plans or retirement plans, employee stock options or stock
purchase plans and group life, health and accidents insurance
and other employee benefit plans agreements, arrangements or
commitments, including, without limitation, holiday, vacation,
Christmas and other bonus practices, to which the Company is a
party or is bound.
All of the contracts, agreements, leases, licenses and commitments required to
be listed on Schedule 5(o) (other than those which have been fully performed)
are valid and binding, enforceable in accordance with their respective terms, in
full force and effect and not subject to threat of cancellation or termination.
Except as disclosed in Schedule 5(o), none of the payments required to be made
under any such contract, agreement, lease, license or commitment has been
prepaid more than 30 days prior to the due date of such payment thereunder, and
there is not thereunder any existing default or event which, after notice or
lapse of time, or both, would constitute a default or a basis for force majeure
or other claim of excusable delay or nonperformance thereunder or result in a
right to accelerate or loss of rights and none of such contracts, agreements,
leases, licenses or commitments is, either when considered singly or in the
aggregate with others, unduly burdensome, onerous or materially adverse to the
Company's businesses, properties, assets, earnings or prospects or likely,
either before or after the Closing, to result in any material loss or liability.
None of the Company's existing or completed contracts is subject to
renegotiation with any governmental body. True and complete copies of all such
contracts, agreement, leases, licenses and other documents listed on Schedule
5(o) (together with any and all amendments thereto) have been delivered to
Purchaser.
(p) Environmental Matters.
(1) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste, hazardous or
toxic substances,
15.
<PAGE>
materials, wastes, pollutants or contaminants, or which are intended to assure
the safety of employees, workers or other persons, including the public.
(ii) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(iii) "Property" shall mean all real property
leased or owned by the Company either currently or in the past.
(iv) "Facilities" shall mean all buildings and
improvements on the Property of the Company.
(2) The Company represents and warrants as follows:
(i) all Hazardous Materials and wastes disposed of by the Company have been
disposed of in accordance with all Environmental and Safety Laws; (ii) the
Company has received no notice (oral or written) of any noncompliance of the
Facilities or its past or present operations with Environmental and Safety Laws;
(iii) no notices, administrative actions or suits are pending or, to the
Sellers' best knowledge, threatened relating to a violation of any Environmental
and Safety Laws; (iv) the Company has not been notified that it is a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), or state analog statute, arising out
of events occurring prior to the Closing Date; (v) to the Sellers' best
knowledge, there have not been in the past, and are not now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property; (vi) to
the Sellers' best knowledge, there have not been in the past, and are not now,
any underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, pumps, or water, gas
or oil wells; (vii) the Company's uses of and activities within the Facilities
have at all times complied with all Environmental and Safety Laws; and (viii)
the Company has all the permits and licenses required to be issued and are in
full compliance with the terms and conditions of those permits.
(q) Customers and Suppliers; Supplies. Schedule 5(q) is a list
of customers of the Company of the Company and all suppliers of significant
goods or services to the Company for
16.
<PAGE>
the period ended July 31, 1999. Except as indicated in Schedule 5(q), all
supplies and services necessary for the conduct of the business of the Company
as presently conducted may be obtained from alternate sources on terms and
conditions comparable to those presently available to the Company, and no facts,
circumstances or conditions exist which create a reasonable basis for believing
that the Company will be unable to continue to procure the supplies and services
necessary to conduct its business on substantially the same terms and conditions
as such supplies and services are currently procured. There has not been, and
there will not be, any adverse change in the relations of the Company or its
subsidiaries with its customers, suppliers, contractors, licenser and lessors,
as a result of the announcement or consummation of the transactions contemplated
by this Agreement.
(r) List of Accounts. Schedule 5(r) sets forth: (a) the name
and address of each bank or other institution in which the Company maintains an
account (cash, securities or other) or safe deposit box; (b) the name and phone
number of the contact person at such bank or institution and (c) the account
number of the relevant account and a description of the type of account.
(s) Labor and Employment Matters.
(1) To the Sellers' knowledge, the Company is in
compliance with all applicable laws, regulations and administrative orders of
any governmental authority relating to employment of labor, including those
related to wages, hours, collective bargaining and the payment and withholding
of taxes and other sums as required by the appropriate governmental authority.
(2) Except as set forth on Schedule 5(s), no litigation,
administrative proceedings or investigations relating to labor or employment
matters of the Company are pending or threatened.
(3) The Company is not a party to or otherwise bound by
or threatened by with any collective bargaining agreement or other labor union
contract and currently there are no organizational campaigns, petitions or other
unionization activities seeking recognition of a collective bargaining unit
which could affect the Company;
(4) There are no controversies, strikes, slowdowns, work
stoppages or labor disturbances pending or threatened between the Company and
any of its employees, and the
17.
<PAGE>
Company has not experienced any such controversy, strike, slowdown, work
stoppage or labor disturbances within the past three years.
(5) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result in
any severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any current or former director, employee or other service
provider of the Company, (ii) increase any benefits otherwise payable by the
Company or (iii) result in the acceleration of the time of payment or vesting of
any such benefits, or increase in the amount of compensation of benefits due any
such person.
(t) Insurance. Schedule 5(t) sets forth a true and complete
list of all insurance policies providing insurance coverage of any nature to the
Company. Such policies are sufficient for compliance by the Company with all
requirements of law and all material agreements to which the Company is a party
or by which any of their assets are bound. All of such policies are in full
force and effect and are valid and enforceable in accordance with their terms,
and the Company has complied with all material terms and conditions of such
policies, including premium payments. None of the insurance carriers has
indicated to the Company an intention to cancel any such policy. The Company
does not have any claim pending against any of the insurance carriers under any
of such policies and there has been no actual or alleged occurrence of any kind
which may give rise to any such claim.
(u) Accounts Receivable and Inventory. Except as set forth in
Schedule 5(u), subject to any reserves set forth on the Balance Sheet, the
accounts receivable shown on the Balance Sheet represent and will represent bona
fide claims arising in the ordinary course of business against debtors for sales
and other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. Such accounts receivable are collectible and will be
collectible by the Company in the ordinary course of business. The amount
carried for doubtful accounts and allowances disclosed in the Balance Sheet is
sufficient to provide for any losses which may be sustained on realization of
the receivables. The inventory reflected on the Balance Sheet in quantity and
quality is fully usable and salable in the ordinary course of business at no
less than book value within the next three (3) years.
18.
<PAGE>
(v) Employees. Schedule 5(v) contains the names, job
descriptions and annual salary rates and other compensation of all employees of
the Company and a list of all employee policies, employee manuals or other
written statements of rules or policies as to working conditions, vacation and
sick leave, a complete copy of each of which has been made available to
Purchaser.
(w) Year 2000 Compliance. The Company has performed all
reasonable acts necessary to ensure that the Company and all of its Intellectual
Property, whether developed of sold before or after the Closing, is Year 2000
Compliant. As used herein, "Year 2000 Compliant" shall mean, that all software,
hardware, firmware equipment, goods or systems material to the licensing and
sale of Intellectual Property, the business operation or financial condition of
the Company, will properly perform date sensitive functions before, during and
after the year 2000. The Company shall, immediately upon request, provide to
Purchaser such certifications or other evidence of its compliance with the terms
hereof as Purchaser may from time to time require.
(x) No Guaranties. None of the obligations or liabilities of
the Company is guaranteed by, or subject to a similar contingent liability of,
any other person, firm or corporation, nor has the Company guaranteed, or
otherwise become contingently liable for, the obligations or liabilities of any
other person, firm or corporation.
(y) Records. The books of account, minute books, stock record
books and other records of the Company are complete and correct in all material
respects and have been maintained in accordance with sound business practices,
and there have been no transactions involving the businesses of the Company
which have been set forth therein and which have not been accurately so set
forth.
(z) Proceedings re Employee Benefit Plans There has not been
any (i) termination of any "defined benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974 ("ERISA") maintained by the
Company or any person, firm or corporation ("Affiliate") which is under "common
control" (within the meaning of Section 4001(b) of ERISA) with the Company, or
(ii) commencement of any proceeding to terminate any such plan pursuant to
ERISA, or otherwise or (iii) written notice given to the Company or any
Affiliate of the intention to commence or seek the commencement of any such
proceeding.
19.
<PAGE>
(aa) Brokers. The sellers have not employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by this Agreement.
(bb) Absence of Certain Business Practices. Neither the
Company nor any officer, employee or agent of the company, nor any other person
acting on their behalf, has, directly or indirectly, within the past five years
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the businesses of the Company (or assist the Company in connection with
any actual or proposed transaction) which (A) might subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (B) if not given in the past, might have had an adverse effect on
the assets, business or operations of the Company as reflected in the Financial
Statements or (C), if not continued in the future, might adversely affect the
Company's assets, business, operations or which might subject the Company's to
suit or penalty in any private or governmental litigation or proceeding.
(cc) Investment Representations. Each Seller is an "accredited
investor" as such term is defined in Rule 501 of Regulation D as promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), has
obtained sufficient information from purchaser or its subsidiaries, including
Purchaser's most recent filings with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, to evaluate the merits
and risks of an investment in the new Stock. Each Seller can bear the economic
risk of his investment in the New Stock for an indefinite period of time and has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment therein. Each Seller
understands that the New Stock is characterized as "Restricted Securities", as
defined in Rule 144 under the Securities Act. The New Stock may not be resold
without registration or an exemption from registration under the Securities Act.
Each Seller represents that he is familiar with and understands the resale
limitations imposed by the Securities Act and the rules and regulations
promulgated thereunder.
(dd) Disclosure. No representation or warranty by Sellers
contained in this Agreement, nor any statement or certificate furnished or to be
furnished by Sellers to Purchaser or
20.
<PAGE>
their representations in connection herewith or pursuant hereto, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact required to make the statements herein or therein
contained not misleading or necessary in order to provide a prospective
purchaser of the business of the Seller with adequate information as to the
Company and its condition (financial and otherwise), properties, assets,
liabilities, business, and Sellers have disclosed to Purchaser in writing all
material adverse facts known to them relating to the same. The representations
and warranties contained in this Section 5 or elsewhere in this Agreement or any
document delivered pursuant hereto shall not be affected or deemed waived by
reason of the fact that Purchaser and/or its representatives knew that any such
representation or warranty is or might be inaccurate in any respect.
6. Representations and Warranties by Purchaser. Purchaser represents
and warrants to Sellers as follows:
(a) Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has full
corporate power and authority to enter into this Agreement and the related
agreements referred to herein and to carry out the transactions contemplated by
this Agreement and to carry on its business as now being conducted and to own,
lease or operate its properties.
(b) Authorization and Approval of Agreement. All proceedings
or corporate action required to be taken by Purchaser relating to the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been taken at or prior to the Closing.
(c) Execution, Delivery and Performance of Agreements. Neither
the execution, delivery nor performance of this Agreement by Purchaser will,
with or without the giving of notice or the passage of time, or both, conflict
with, result in a default, right to accelerate or loss of rights under, or
result in the creation of any lien, charge or encumbrance pursuant to, any
provision of Purchaser's certificate of incorporation or by-laws or any
franchise, mortgage, deed of trust, lease, license, agreement, understanding,
law, ordinance, rule or regulation or any order, judgment or decree to which
Purchaser is a party or by which it may be bound or affected. Purchaser has full
power and authority to enter into this Agreement and to carry out the
transactions
21.
<PAGE>
contemplated hereby, all proceedings required to be taken by Purchaser to
authorize the execution, delivery and performance of this Agreement and the
agreements relating hereto, have been properly taken and this Agreement
constitutes a valid and binding obligation of Purchaser.
(d) Litigation. There is no legal action, suit, arbitration,
governmental investigation or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or to the knowledge
of Purchaser threatened, against or relating to Purchaser in connection with or
relating to the transactions contemplated by this Agreement, and Purchaser does
not know or have any reason to be aware of any basis for the same.
7. Conduct of Business prior to Closing.
(a) On and after July 31, 1999 and prior to the Closing, the
Company has conducted and shall conduct its business and affairs only in the
ordinary course and consistent with its prior practice and shall maintain, keep
and preserve its assets and properties in good condition and repair and maintain
insurance thereon in accordance with present practices, and Sellers shall use
their best efforts (i) to preserve the business and organizations of the Company
intact, (ii) to keep available to Purchaser the services of the Company's
present officers, employees, agents and independent contractors, (iii) to
preserve for the benefit of Purchaser the goodwill of the Company's suppliers,
customers, landlords and others having business relations with it, and (iv) to
cooperate with Purchaser and use best efforts in obtaining the consent of any
landlord or other party to any lease or contract with the Company where the
consent of such landlord or other party may be required by reason of the
transactions contemplated hereby.
(b) Seller shall give Purchaser prompt written notice of any
change in any of the information contained in the representations and warranties
made in Section 5 or elsewhere in this Agreement or the Schedules referred to
herein which occurs prior to the Closing.
(c) Sellers shall consult with Purchaser with respect to (i)
the cancellation of contracts, agreements, commitments or other understandings
or arrangements to which each of the Company is a party, including, without
limitation, purchase orders for any item of inventory and commitments for
capital expenditures or improvements, (ii) the commencement in one or more of
the Company's locations of the orderly and gradual discontinuance of particular
items or operations
22.
<PAGE>
and (iii) purchasing, pricing or selling policy (including, without limitation,
selling merchandise at discounts); provided, however, that nothing contained in
this subsection (c) shall require Sellers to take or fail to take any action
that, in Sellers' reasonable judgment, is likely to give rise to a substantial
penalty or a claim for damages by any third party against the Company, or is
likely to result in losses to the Company, or is otherwise likely to prejudice
in any material respect or unduly interfere with the conduct of the Company's
business and operations in the ordinary course consistent with prior practice,
or is likely to result in a breach by Sellers of any of their representations,
warranties or covenants contained in this Agreement (unless any such beach is
first waived in writing by Purchaser).
8. Access to Information and Documents. Upon reasonable notice and
during regular business hours, Sellers shall give Purchaser and Purchaser's
attorneys, accountants and other representatives full access to the Company's
personnel and all properties, documents, contracts, books and records of the
Company and shall furnish Purchaser with copies of such documents and with such
information with respect to the affairs of the Company as Purchaser may from
time to time reasonably request, and Purchaser will not disclose the same prior
to the Closing to any third party. Any such furnishing of such information to
Purchaser or any investigation by Purchaser shall not affect Purchaser's right
to rely on any representations and warranties made in this Agreement or in
connection herewith or pursuant hereto.
9. Employment Contract. At the Closing, Purchaser shall execute and
deliver and Cohen shall execute and deliver, an employment contract in the form
of Exhibit D annexed hereto.
10. Non-Competition Agreement; Confidentiality Agreements. Each of
the Sellers shall each execute and deliver to Purchaser at the Closing a
Non-Competition in the form of Exhibit E annexed hereto. Sellers shall cause all
officers, employees or principals of the Company as Purchaser reasonably
believes is necessary to execute Proprietory Information and Invention
Agreements in the form of Exhibit F annexed hereto.
11. Release. Sellers shall each execute and deliver to Purchaser at
the Closing a General Release in the form of Exhibit G annexed hereto.
23.
<PAGE>
12. Conditions precedent to Purchaser's Obligations. All obligations
of Purchaser hereunder and at the Closing are subject, at the option of
Purchaser, to the fulfillment of each of the following conditions at the time of
the Closing, and Sellers shall exert their best efforts to cause each such
condition to be so fulfilled:
(a) All representations and warranties of Sellers contained
herein or in any document delivered pursuant hereto shall be true and correct in
all material respects when made and shall be deemed to have been made again at
and as of the date of the Closing and shall then be true and correct in all
material respects except for changes in the ordinary course of business after
the date hereof in conformity with the covenants and agreements contained
herein.
(b) All covenants, agreements and obligations required by the
terms of this Agreement to be performed by Sellers at or before the Closing
shall have been duly and properly performed in all material respects.
(c) There shall not have occurred any material adverse change
in the condition (financial or otherwise), business, properties, or assets of
the Company.
(d) All documents required to be delivered to Purchaser at or
prior to the Closing shall have been so delivered.
(e) Purchaser shall have received an opinion of Seller's
counsel, dated the date of the Closing, in form and substance reasonably
acceptable to Purchaser.
(f) Sellers shall have obtained written consents to the
transfer or assignment to Purchaser of all consignment agreements, licenses,
leases and other material contracts of the Company (other than immaterial
purchase and sales borders in the ordinary course of business) where the consent
of any other party to any such contract may, in the reasonable opinion of
Purchaser's counsel, be required for such assignment or transfer.
(g) Each Seller shall have delivered all other documents
required to be delivered on Exhibit C.
24.
<PAGE>
13. Conditions Precedent to Sellers' Obligations. All obligations of
Sellers at the Closing are subject, at the option of Sellers, to the fulfillment
of each of the following conditions at the Closing, and Purchaser shall exert
its best efforts to cause each such condition to be so fulfilled:
(a) All representation and warranties of Purchaser contained
herein or in any document delivered pursuant hereto shall be true and correct in
all material respects when made and as of the Closing.
(b) All obligations required by the terms of this Agreement to
be performed by Purchaser at or before the Closing shall have been duly and
properly performed in all material respect.
(c) All documents required to be delivered to Sellers at or
prior to the Closing have been delivered.
14. Indemnification. Sellers, jointly and severally, hereby
indemnify and agree to hold Purchaser, its subsidiaries, affiliates, directors,
officers, representatives, successors and assigns harmless from, against and in
respect of (and shall on demand reimburse Purchaser for):
(i) any and all losses, liabilities or damages suffered or
incurred by Purchaser (a) by reason of any untrue representation,
breach of warranty or nonfulfillment of any covenant by Sellers
contained herein or in any certificate, document or instrument
delivered to Purchaser pursuant hereto or in connection herewith or
(b) which would not have been suffered or incurred if such
representation were true and not breached or if such covenant were
fully performed;
(ii) all liabilities of the Company of any nature, whether
accrued, absolute, contingent, or otherwise, whether or not known,
to the extent not reflected or reserved against in full in the
Company's Balance Sheet or incurred since July 31, 1999 in the
ordinary course of business, including, without limitation, any tax
liabilities to the extent not so reflected or reserved against,
accrued in respect of, or measured by the Company's income up to
and including the Closing, or arising out of transactions entered
into, or any state of facts arising, prior to the Closing;
25.
<PAGE>
(iii) all liabilities of, or claims against, the Company
arising out of the conduct of the Company's business between July
31, 1999 and the Closing, otherwise than in ordinary course, or
arising out of any presently existing contract or any contract or
commitment entered into or made by the Company between the date
hereof and the Closing, except to the extent expressly assumed by
the Purchaser pursuant to the terms hereof;
(iv) any and all losses, liabilities or damages suffered or
incurred by Purchaser by reason of or in connection with any claim
for a finder's fee or brokerage or other commission arising by
reason of any services alleged to have been rendered to or at the
instance of Sellers with respect to this Agreement or any of the
transactions contemplated hereby;
(v) any and all losses, liabilities or damages suffered or
incurred by Purchaser (a) by reason of any claim for severance or
vacation pay accruing or incurred or triggered by a discharge at
any time on or after the date hereof or (b) relating to employee
benefits attributable to services performed prior to the Closing;
and
(vi) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this
indemnity.
15. Purchaser's Indemnification. Purchaser hereby indemnifies and
agrees to hold Sellers harmless from, against and in respect of (and shall on
demand reimburse Sellers for):
(i) any and all losses, liabilities or damages suffered or
incurred by Sellers (a) by reason of any untrue representation,
breach of warranty or nonfulfillment of any covenant by Purchaser
contained herein or in any certificate, document or instrument
delivered to Sellers pursuant hereto or in connection herewith or
(b) which would not have been suffered or incurred if such
representation were true and not breached or if such covenant were
fully performed;
26.
<PAGE>
(ii) any and all losses, liabilities or damages suffered or
incurred by Sellers by reason of or in connection with any claim
for a finder's fee or brokerage or other commission arising by
reason of any services alleged to have been rendered to or at the
instance of Purchaser with respect to this Agreement or any of the
transactions contemplated hereby;
(iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including,
without limitation, legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this
indemnity.
16. Indemnification Process; Limitations; Set-Off.
(a) Definitions. As used in this Agreement, the following
terms have the following meanings:
(i) "Claim" means any claim for indemnification under
Section 14 or 15 above made by an Indemnitee, other than a Third Party Claim.
(ii) "Indemnitee" means any party who asserts a Claim or
Third Party Claim for indemnification pursuant to Section 14 or 15 above.
(iii) "Indemnitor" means any party against whom an
Indemnitee asserts a Claim or Third Party Claim for indemnification pursuant to
Section 14 or 15 above.
(iv) "Third Party Claim" means a claim for indemnification
under Section 14 or 15 above in connection with a claim or legal proceeding by a
third party.
(b) Claims. Whenever any Claim shall arise under Section 14 or
15 as applicable the Indemnitee shall notify the Indemnitor in writing of the
Claim within thirty (30) days after the Indemnitee becomes aware of the Claim's
existence, specifying (to the extent known) the factual basis for the Claim and
the amount or an estimate (if known or reasonably determinable) of the damages,
losses or liabilities (collectively, "Damages") that may arise therefrom;
provided, however, that the failure of the Indemnitee to so give such notice
shall not excuse the Indemnitor's
27.
<PAGE>
obligation to indemnify except to the extent that the Indemnitor has suffered
actual damage or prejudice by reason of the Indemnitee's failure to give, or
delay in giving, such notice.
(c) Third Party Claims. In the event of a Third Party Claim,
the Indemnitee shall give the Indemnitor notice after the Indemnitee receives
notice of the third party's claim underlying the Third Party Claim and shall
specify (if known) the factual basis for the underlying third party's claim and
the amount or an estimate (if known or reasonably determinable) of the Damages
that may arise therefrom. In each such case the Indemnitee agrees to give such
notice to the Indemnitor promptly; provided, however, that the failure of the
Indemnitee to so give such notice shall not excuse the Indemnitor's obligation
to indemnify except to the extent that the Indemnitor has suffered actual damage
or prejudice by reason of the Indemnitee's failure to give, or delay in giving,
such notice. After receipt of such notice from the Indemnitee, the Indemnitor
shall acknowledge in writing its obligation to indemnify in respect of such
Third Party Claim, but if the Indemnitor does not so acknowledge its obligation,
the Indemnitee shall have the right to compromise or defend the third party's
claim underlying the Third Party Claim at the expense and for the account of the
Indemnitor. If the Indemnitor shall have so acknowledged its obligation to
indemnify in respect of the Third Party Claim, the Indemnitor shall, at its
expense, have the right to control the defense of the underlying third party's
claim with counsel of its choice reasonably satisfactory to the Indemnitee so
long as the Indemnitor conducts the defense of the underlying third party's
claim actively and diligently. If the Indemnitor exercises its right to control
the defense of the third party's claim underlying a Third Party Claim, the
Indemnitee shall also have the right to participate in such defense at its own
expense. At any time after notice of any Third Party Claim, the Indemnitor may
request the Indemnitee to consent in writing to the payment or compromise of the
underlying third party's claim, at the expense and for the account of the
Indemnitor, which consent shall not be unreasonably withheld.
(d) Tax Benefit. Anything in this Agreement to the contrary
notwithstanding, the aggregate amount payable by an Indemnitor under Section 14
or 15 above, as the case may be, shall be reduced for any tax benefit accruing
to the Indemnitee by reason of the matters giving rise to the indemnification
obligation of the Indemnitor. Such tax benefit shall be calculated at the
maximum applicable blended marginal tax rate for corporate income taxes for the
United States and
28.
<PAGE>
for the state in which the Indemnitee is organized or incorporated as in effect
in the tax years in which the matters giving rise to the indemnification
obligation of the Indemnitor are discovered by the Indemnitee.
(e) Insurance. Anything in this Agreement to the contrary
notwithstanding, the aggregate amount payable by an Indemnitor under Section 14
or 15 above, as the case may be, shall be reduced to the extent to which the
Indemnitee or any other claimant actually receives any proceeds of any insurance
policy that are paid with respect to the matter or occurrence that gave rise to
the indemnification obligation of the Indemnitor. Submission to insurance of any
insurable claim otherwise giving rise to indemnification under Section 14 or 15
shall be a condition precedent to seeking indemnification under this Section 14
or 15 as applicable.
(f) Set-Off. Subject to the limitations set forth in this
Section 16, Purchaser shall have the right, in accordance with this subsection
(f), to set-off the amount of any Claim or Third Party Claim asserted against
Sellers under Section 14 above against the New Stock and any payments due to
Sellers under the Note or otherwise payable to them under Section 2. Purchaser
shall first notify in writing (the "Set-Off Notice") the Sellers against which
the Claim or Third Party Claim is being made of Purchaser's intention to set-off
in whole or part any payment due not less than ten (10) days prior to the date
such payment would otherwise be due and payable. The Set-Off Notice shall set
forth in reasonable detail the facts and circumstances of the Claim or Third
Party Claim. the Sellers may object, in whole or part, to any exercise of
Purchaser's right of set-off by notice in writing to the Purchaser (the
"Objection Notice") within five (5) days of receipt of the Set-Off Notice. If
the Sellers shall so object, the Purchaser may exercise its right of set-off to
the extent not in dispute, but shall pay the disputed balance of any payment(s)
or deliver the New Stock into escrow to be held by Purchaser's counsel as escrow
agent. In the event that the Sellers shall object to the Set-Off Notice, the
parties shall attempt in good faith to resolve their dispute. If the dispute
cannot be resolved by the parties within thirty (30) days of the date of
delivery of the Objection Notice, then it shall be resolved by arbitration in
accordance with Section 19 below. Notwithstanding anything to the contrary
contained in this Agreement or the Note, in the event Purchaser exercises its
right of set-off in accordance with this subparagraph (f) and is not the
29.
<PAGE>
prevailing party, Seller shall not be entitled to declare a default hereunder or
under the Note provided Purchaser has made payment for all amounts due
thereunder to Sellers or to the escrow agent.
(g) Pledge. To secure their obligations of indemnification
under this Agreement, each of the Sellers shall pledge their New Stock to
Purchaser pursuant to a Pledge Agreement in the form of Exhibit I.
(h) Limitation on Indemnity. Notwithstanding anything to the
contrary contained in this Agreement, the indemnification obligation of each of
Arola, Mandel and Westbrook to Purchaser shall not exceed the amount that he
receives, directly or indirectly, under the Agreement.
17. Right of First Offer; Option.
(a) In the event the Purchaser desires to sell substantially
all of the stock of the Company, or substantially all of the assets of the
Company (a "Sale"), separate from any other operating division or line of
business of the Purchaser, Purchaser shall give Cohen written notice of its
intent to offer a Sale and Cohen shall have fifteen (15) days in which to submit
a written offer to purchase the Company (the "Right of First Offer"). Neither
Cohen nor the Purchaser shall be bound by the Right of First Offer unless both
parties, in the exercise of their respective discretion, execute a written,
binding agreement within fifteen (15) days of receipt of the Right of First
Offer. The Right of First Offer shall expire on the earlier of (i) termination
of Cohen's employment with Purchaser; (ii) five (5) years after the Closing; or
(iii) the sale of the Company or substantially all of the Company's assets in
the event that Cohen's Right of First Offer is not accepted or in the event of a
Sale where no written agreement was executed between Cohen and Purchaser. Cohen
shall not have a Right of First Offer in the event of a Sale made in conjunction
with the sale of any other operating division or line of business of Purchaser.
(b) In the event Purchaser commences any proceeding under any
bankruptcy or insolvency law seeking an arrangement, reorganization or the like,
or the adjudication of Purchaser, as a bankrupt, Sellers shall have the right
and option to repurchase the Shares ("Sellers' Option") from the Purchaser at a
purchase price of three (3) times the EBITDA (defined as earnings before
interest, taxes, depreciation and amortization and determined in accordance with
accrual basis
30.
<PAGE>
accounting principles by Purchaser's accountants) from the operation by
Purchaser of the Company's continuing business for the twelve (12) month period
prior to the Order for Relief. Sellers' Option shall expire on the termination
of Cohen's employment with Purchaser or five (5) years after the Closing,
whichever is earlier. In the event Sellers desire to exercise Sellers' Option,
Sellers shall give written notice (the "Option Notice") to Purchaser. Purchaser
shall provide Sellers with a written calculation of the purchase price within
sixty (60) day of receipt of the Option Notice. If the Sellers shall accept the
initial calculation, or shall fail to object to the initial calculation within
the sixty (60) day period, then the amount set forth in the Purchaser's initial
calculation shall by the repurchase price.
18. Survival of Warranties. All representations, warranties,
covenants and obligations in this Agreement, or in any certificate, schedule,
exhibit or other document delivered pursuant to this Agreement, shall survive
the Closing. All representations and warranties made by Sellers or by Purchaser
herein, or in any certificate, schedule or exhibit delivered pursuant hereto,
shall be deemed to have been relied upon by the party or parties to whom given
notwithstanding any investigation heretofore made or omitted by such party.
19. Resolution of Certain Disputes. Any dispute whatsoever relating
to the scope, extent, validity or enforceability of any Claim (as between
Indemnitor and Indemnitee) or Third Party Claim, which is not resolved within
the thirty (30) day period commencing upon the issuance of written notice by one
party to the other, shall be settled by arbitration in the City of Waterbury,
Connecticut by one arbitrator in accordance with the rules then prevailing of
the American Arbitration Association; provided, however, that unless otherwise
agreed by the parties, the arbitration proceedings shall be limited to a maximum
of three (3) full days for the presentation of evidence and the arbitrator shall
render an award in the matter no later than thirty (30) days after the
commencement of the arbitration proceedings. Judgment upon the award rendered by
the arbitrator may be entered in any court of competent jurisdiction. It is the
purpose of this Agreement, and the intent of the parties, to make the submission
to arbitration of any dispute or controversy arising out of any of the matters
described above an express condition precedent to any legal or equitable action
or proceeding of any nature whatsoever. All arbitration proceedings and the
results thereof shall be kept strictly confidential by each party and shall not
be disclosed to any third party, except as may be
31.
<PAGE>
required by law, legal process or the requirements of a national securities
exchange. Notwithstanding anything to the contrary contained in this Section 19,
any action for specific performance of this Agreement or any provision hereof of
other equitable relief may be filed and pursued b any party to this Agreement in
any court having jurisdiction thereof.
20. Specific Performance. Each of the parties acknowledges that
money damages would not be a sufficient remedy for any breach of this Agreement
and that irreparable harm would result if this Agreement and that irreparable
harm would result if this Agreement were not specifically enforced. Therefore,
the rights and obligations of the parties under this Agreement shall be
enforceable by a decree of specific performance issued by any court of competent
jurisdiction, and appropriate injunctive relief may be applied for and granted
in connection with such decree. A party's right to specific performance shall be
in addition to all other legal or equitable remedies available to such party.
21. Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class registered mail, return receipt requested, addressed to
the parties at the addresses set forth in Schedule 21 annexed hereto (or at such
other address as any party may specify by notice to all other parties given as
aforesaid).
22. Legal and Other Costs.
In the event that any party (the "Defaulting Party") defaults
in his or its obligations under this Agreement and, as a result thereof, the
other party (the "Non-Defaulting Party") seeks to legally enforce his or its
rights hereunder against the Defaulting Party, then, in addition to all damages
and other remedies to which the Non-Defaulting Party is entitled by reason of
such default, the Defaulting Party shall promptly pay to the Non-Defaulting
Party an amount equal to all costs and expenses (including reasonable attorneys'
fees) paid or incurred by the Non-Defaulting Party in connection with such
enforcement.
23. Public Announcements, Confidentiality. Any public announcement
or similar publicity with respect to this Agreement or the transactions
contemplated hereby shall be issued, if at all, at such time and in such manner
as Purchaser determines. Unless consented to by Purchaser in
32.
<PAGE>
advance or required by applicable law, prior to the Closing Sellers shall, and
shall cause the Company to, keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any third party. Sellers and
Purchaser shall consult with each other concerning the means by which the
Company's employees, customers, and suppliers and others have dealings with the
Company shall be informed of the transactions contemplated herein and Purchaser
shall have the right to be present for any such communication.
24. Post-Closing Operation. Purchaser shall make available to the
Company a maximum of $500,000 for working capital and funding over the two (2)
year period after the Closing to implement a detailed business plan and proposed
budget concerning an rx/e-commerce product which shall be drafted by Cohen,
provided such plan and budget are acceptable to the Purchaser's Board of
Directors.
25. Miscellaneous.
(a) This writing constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified,
amended or terminated except by a written agreement specifically referring to
this Agreement signed by all of the parties hereto.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
(c) This Agreement shall be binding upon and inure to the
benefit of each corporate party hereto, its successors and assigns, and each
individual party hereto and his heirs, personal representatives, successors and
assigns.
(d) The paragraph headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said paragraphs.
(e) Each party hereto shall cooperate, shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
33.
<PAGE>
(f) Seller shall pay all sales, transfer and documentary
taxes, if any, payable in connection with the sale, conveyances, assignments,
transfers and deliveries to be made to Purchaser hereunder.
(g) This Agreement may be executed in one or more counterparts
and/or by facsimile signature, all of which taken together shall be deemed one
original.
(h) This Agreement and all amendments thereof shall be
governed by and construed in accordance with the law of the State of Connecticut
applicable to contracts made and to be performed therein.
(i) Each party hereto hereby irrevocably submits to the
jurisdiction of the courts of the State of Connecticut, or any federal court
sitting in Connecticut, in any action or proceeding arising out of or relating
to this Agreement, and hereby irrevocably waives any and all objections each may
have to venue in any such courts.
(j) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION OR AGREEMENT
CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SELLERS:
/s/ Stephen Cohen
-------------------------------------------
STEPHEN COHEN
/s/ Robert Airola
-------------------------------------------
ROBERT AIROLA
/s/ Gerald Mandell
-------------------------------------------
GERALD MANDELL
34.
<PAGE>
/s/ Reginald Westbrook
-------------------------------------------
REGINALD WESTBROOK
PURCHASER:
OPTICARE HEALTH SYSTEMS, INC.
By /s/ Steven L. Ditman
-----------------------------------------
STEVEN L. DITMAN, Its Treasurer
35.
<PAGE>
EMPLOYMENT AGREEMENT
FOR
SAMUEL B. PETTEWAY
This AGREEMENT (the "Agreement') is dated as of August 9, 1999, by and
between SARATOGA RESOURCES, INC., a Delaware corporation (the "Employer"), and
SAMUEL B. PETTEWAY, of Rocky Mount, North Carolina (the "Employee").
WHEREAS, the Employer desires to continue to employ the Employee as its
President, Managed Care Division, and the Employee desires to continue to render
such services, each on the terms and conditions set forth below;
WHEREAS, Employee understood, before agreeing to be employed, that the
covenant not to compete was a condition of his employment;
WHEREAS, the Employer considers the establishment, maintenance and
continuity of qualified management to be essential to protecting and enhancing
its best interests and the best interests of its shareholders;
WHEREAS, the Employer has determined that it is in its best interest to
enter into employment agreements with key management and executive personnel to
enable the Employer to attract and retain qualified management;
WHEREAS, the Employer believes that when a change in control is
perceived as imminent, or is occurring, it should be able to receive and rely on
disinterested advice from management regarding the best interests of the
Employer without concern that members of management might be distracted or
concerned by the personal uncertainties and risks created by the perception of
an imminent or occurring change in control, and the Employer also recognizes
<PAGE>
that the possibility of such a change in control could result in the departure
or distraction of key management personnel to the detriment of the Employer;
WHEREAS, the Employer has determined that it would be in its best
interest to reinforce and encourage the continued attention and dedication of
key members of the management of the Employer to their duties without financial
or employment concerns arising from the possibility of a change in control and
to enable such key employees to consider only the best interests of all
shareholders and employees in negotiating with respect to any such change in
control; and
WHEREAS, in furtherance of the above stated objectives, the parties
desire to enter into this Agreement to set forth the terms and conditions for
the employment relationships of the Employee with the Employer.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Employer hereby employs the Employee and the Employee
hereby accepts employment upon the terms and conditions set forth below.
2. SCOPE OF EMPLOYMENT.
(a) The Employee is hereby employed as President, Managed Care
Division of the Employer as of the closing of a business combination between
PrimeVision Health, Inc. and OptiCare Eye Health Centers, Inc. (the
"Commencement Date") and which shall continue through the term of this
Agreement. In that capacity, the Employee shall be responsible for the
operations of the Employer's Managed Care business unit and other management
services to the Employer of the type customarily performed by persons serving in
such capacity or in another executive capacity. The Employee shall also perform
such other duties as the Chief Executive Officer of the Employer may from time
to time reasonably direct.
-2-
<PAGE>
(b) The Employee shall maintain regular hours at the offices of
the Employer in Rocky Mount, North Carolina, or such other office(s) as the
Employer shall from time to time designate. The Employee shall comply with all
reasonable rules, regulations and overall policies established by the Employer.
(c) During the term of employment hereunder, the Employee shall
devote his full professional time and his best efforts to the business and
affairs of the Employer and shall not engage in any outside business activities
related to the managed care industry, except as may otherwise be agreed to by
the Chief Executive Officer of the Employer.
3. COMPENSATION.
(a) Base Salary. The Employer shall pay the Employee, during the
term of this Agreement, a base salary at an annual rate of $175,000.00 (the
"Base Salary"). Participation in deferred compensation, discretionary bonus,
retirement, and other employee benefit plans and in fringe benefits (including
those described below) shall not reduce the Base Salary payable to the Employee.
The Base Salary shall be payable not less frequently than semimonthly. The
Employee's Base Salary shall be increased effective January 1, 2002 to
$193,000.00.
(b) Bonuses. During the term of this Agreement, the Employee
shall be eligible to receive the following described Base Bonuses, Performance
Bonuses, Incremental Performance Bonuses and Executive Bonuses.
(1) Base Bonuses. Each month during the following calendar
years, or portions thereof, included within the term of this Agreement, the
Employee shall receive the following monthly Base Bonus:
-3-
<PAGE>
Calendar Year Monthly Base Bonus
------------- ------------------
1999 $3,833.00
2000 $4,763.00
2001 $5,667.00
(2) Performance Bonuses. If the net operating profit for
the Employer's Managed Care Division for the following calendar years equals or
exceeds the following amounts, the Employee shall be entitled to the following
Performance Bonus, payable not later than ninety (90) days after the end of such
calendar year:
Calendar Year Minimum Net Operating Profit Performance Bonus
- ------------- ---------------------------- -----------------
1999 $1.4 million $72,930.00
2000 $1.9 million $76,611.00
2001 2001 Managed Care Division Net Operating $ 2,000.00
Profit Budget Amount Approved by the
Employer's Board of Directors
2002 2002 Managed Care Division Net Operating $77,200.00
Profit Budget Amount Approved by the
Employer's Board of Directors
Notwithstanding the foregoing, for purposes of determining the net operating
profit for calendar year 1999, if, as of the Commencement Date, the net
operating profit of the Managed Care Division of PrimeVision Health, Inc. would
reasonably be likely to equal or exceed $1.4 million as of the end of calendar
year 1999 (absent the business combination of PrimeVision Health, Inc.
-4-
<PAGE>
and OptiCare Eye Health Centers, inc.), the Performance Bonus identified
hereinabove shall be payable to the Employee within ninety days of the
Commencement Date.
(3) Incremental Performance Bonuses. If the net operating
profit for the Employer's Managed Care Division for the following calendar years
equals or exceeds the Managed Care Division's net operating profit budget for
such calendar year approved by the Employer's Board of Directors, the Employee
shall be entitled to receive the following percentage of the difference between
the actual and budgeted net operating profit as an Incremental Performance
Bonus, payable not later than ninety (90) days after the end of such calendar
year:
Percentage of Difference Between Actual
Calendar Year and Budget Net Operating Profit
- ------------- ---------------------------------------
2000 8%, but not more than $41,234.00
2001 6%, but not more than $17,500.00
2002 5%, but not more than $19,300.00
(4) Executive Bonuses. For calendar years 2001 and 2002,
if the Employer's net income for such calendar year equals or exceeds the
Employer's net income budget for such calendar year approved by the Employer's
Board of Directors, the Employee shall be entitled to receive, as an Executive
Bonus, a fraction of twenty-five percent (25%) of the difference between the
actual and budgeted net income, the numerator of which is fifty percent (50%) of
the Employee's Base Salary for such calendar year and the denominator of which
is fifty percent (50%) of the base salaries of all of the Employer's senior
managers. Such Executive Bonus shall be paid not later than ninety (90) days
after the end of such calendar year.
(c) Participation in Stock Incentive Plan. The Board of Directors
may grant the Employee certain stock option shares of the Employer's Common
Stock, in accordance with the
-5-
<PAGE>
Employer's 1999 Omnibus Plan, as amended from time to time. Such options shall
vest in the event the Employee's employment is terminated for any reason other
than for cause (as defined in paragraph 7(a)(2)), including death, disability
and termination by the Employer other than for cause. Upon the Commencement
Date, the Employee shall receive a grant of 45,000 options to purchase the
Employer's stock.
4. BENEFITS, VACATIONS AND SEMINARS; SICK LEAVE.
(a) Benefit Programs and Expenses.
(1) The Employer shall provide the Employee with the
benefit of its health insurance plans and such other benefits as the Employer
may establish from time to time for the benefit of its full-time key management
personnel.
(2) The Employer shall reimburse the Employee for the cost
of pursuing post-graduate business or financial studies and/or acquiring
additional professional qualifications all as previously approved by the
Employer.
(3) The Employer shall pay the cost to the Employee of
attending professional meetings or conventions, etc., as previously approved by
the Employer.
(4) The Employer shall pay for the Employee's dues for
membership in any professional, social or civic organization approved by the
Employer.
(b) Vacations and Seminars.
The Employee shall be entitled to a paid vacation of four (4)
work weeks per calendar year, or prorata for a portion of a calendar year. The
time of said vacation shall be determined by mutual consent of the parties
hereto. Unused days of vacation may not be carried over from year to year.
Notwithstanding the foregoing, the Employee shall be entitled to use on
-6-
<PAGE>
or before December 31, 1999 any unused vacation time existing as of the
Commencement Date that was accumulated while the Employee was employed by
PrimeVision Health, Inc.
(c) Sick Leave. In the event that the Employee shall be absent
due to illness or injury, his Base Salary shall continue for a period not
exceeding one (1) day for each month of active employment with the Employer
prior to the date of said illness or injury, up to an annual maximum of twelve
(12) days, plus any unused vacation time. Absences in excess of the number of
days so determined shall be without pay. Sick leave may not be carried over to a
succeeding year. Notwithstanding the foregoing, the Employee shall be entitled
to use on or before December 31, 1999 any unused sick leave existing as of the
Commencement Date that was accumulated while the Employee was employed by
PrimeVision Health, Inc.
5. DISABILITY AND DISABILITY PAYMENTS.
(a) The Employer shall pay or reimburse (grossed up to account
for federal and state income taxes) the Employee for long-term disability
insurance covering total disability as defined in such long-term disability
policy or policies, providing a combined maximum benefit of up to 65% of the
Base Salary plus bonus earned as of the date of total disability, subject to a
ninety (90) day elimination period, an inflation or cost of living benefit
rider, and the longest available benefit period. In the event that the Employee
shall become partially or totally disabled (as defined in such long term
disability policy) for a period of not more than 90 days, then, during the
period of such partial or total disability, Employee shall be paid the
compensation set forth in Paragraph 3 for such 90 day period. If available, the
Employee may purchase additional coverage enhancements or riders at his own
expense.
(b) Notwithstanding the provisions of Paragraph 7, the Employer
may terminate the Employee's employment effective at a time after the lapse of
the ninety (90) day period
-7-
<PAGE>
referred to in Paragraph 5(a). If the Employee's employment is terminated by
reason of disability, the Employee shall receive the benefits, if any, payable
under any long-term disability plan maintained by the Employer and the Employee
shall be entitled to the accelerated vesting of any stock options granted to the
Employee as provided in Paragraph 3(c), but no additional compensation or other
benefits for any period after termination for disability.
6. TERM. The initial term of employment under this Agreement shall
commence on the Commencement Date and shall continue for an initial period of
three (3) years from the Commencement Date. Thereafter, the term of employment
shall be extended automatically for subsequent one (1) year terms on the same
terms and conditions unless either party gives contrary written notice to the
other party on or before the "Applicable Notice Date". The "Applicable Notice
Date" shall be the date that is six (6) months prior to the next anniversary
date, in the event that the Employee does not desire to renew the term of this
Agreement or in the event that the Employer desires not to renew this Agreement.
References herein to the term of this Agreement shall refer to both such initial
term and any additional or extended terms.
7. TERMINATION OF EMPLOYMENT.
(a) Termination By the Employer for Cause.
(1) The Employer may at any time terminate the Employee's
employment with the Employer for cause. The Employee shall have no right to
receive compensation or other benefits for any period after termination for
cause.
(2) The term "termination for cause" shall mean
termination because of the Employee's dishonesty or willful misconduct in
respect of the Employee's duties under this Agreement, conviction of, or plea of
nolo contendere to, a felony or crime involving moral
-8-
<PAGE>
turpitude, or a breach of fiduciary duty, whether or not involving personal
profit, in connection with the Employee's employment by the Employer.
(3) In determining whether a "termination for cause" has
occurred, it shall be the Employer's burden to prove the alleged acts.
(b) Termination by the Employer Other Than For Cause. The
Employer may at any time terminate upon three (3) months' prior written notice
the Employee's employment other than for cause; provided, however, that in the
event of any such termination of employment other than for cause, the Employer
shall make the payments provided in Paragraph 8(b).
(c) Termination by the Employee. The Employee may terminate his
employment for any reason upon six (6) months prior written notice to that
effect delivered to the Employer, unless a shorter notice period is approved by
the Chief Executive Officer of the Employer. The Employee agrees that if he
terminates his employment with the Employer under this subparagraph 7(c), he
shall devote his full professional time and best efforts to the business and
affairs of the Employer during such six (6) month period; and the Employer
agrees to continue to pay the Employee his Base Salary, any declared bonuses
until the close of such period and such other payments as may be provided in
Paragraph 8(b); provided, however, that if the Employee fails to devote his full
professional time and best efforts to the business and affairs of the Employer
during such six (6) month period, the Employer shall not be obligated to make
any further payments under any provision of this Agreement other than to make
payments to the Employee of the Base Salary accrued prior to the Employee's
breach of his commitment under this subparagraph 7(c) and such bonuses allocable
to the annual period prior to the date of such breach, when and in such amounts
as are declared by the Board of Directors of the Employer, and such other
payments as may be provided in Paragraph 8(b). In the event of such breach, the
-9-
<PAGE>
Employer shall have the right to pursue all other remedies available at law or
in equity. Notwithstanding anything to the contrary in the foregoing, nothing in
this subparagraph 7(c) is intended to modify the Employee's obligations pursuant
to paragraphs 10, 11, and 12 of this Agreement.
8. PAYMENTS IN THE EVENT OF OR SEPARATION FROM SERVICE PRIOR TO CHANGE
OF CONTROL.
(a) Death. Upon the death of the Employee, the Employee's Base
Salary, prorated to the date of his death, and such bonuses allocable to the
annual period prior to the date of death, when and in such amounts as declared
by the Board of Directors of the Employer, shall be paid to his named
beneficiary, or if there be none then living, to the Employee's estate. In
addition, the Employer shall, if it is commercially feasible, purchase insurance
on the life of the Employee in the amount of one (1) times the Employee's Base
Salary, with the proceeds payable to the Employee's estate. If the premium for
such life insurance is not commercially feasible, and such insurance is not
obtained, the Employee's estate shall be paid $200,000 as a death benefit.
(b) Compensation and Benefits Upon Termination. In the event the
Employee's employment is terminated without cause by the Employer, the Employee
shall be paid, as severance pay, an amount equal to eighteen (18) months of Base
Salary as a lump sum and the benefits hereunder. If the Employee terminates his
employment and, in consideration of the enforcement of the covenant not to
compete set forth in subparagraph (a) of Paragraph 11, the Employee shall be
paid an amount equal to twelve (12) months Base Salary, payable in monthly
installments.. In the event the Employees' employment is terminated for cause or
if the Employee breaches Paragraph 10 or 11 hereunder or if the Employee is
receiving payment upon
-10-
<PAGE>
a change in control pursuant to Paragraph 14, no payments under this
Paragraph 8(b) shall be made following such termination or breach.
9. CONSENT TO INSURANCE PROCEDURES. The Employee agrees that the
Employer may from time to time apply for and take out in its own name and at its
own expense such life, health, accident or other insurance upon the Employee as
the Employer may deem necessary or advisable to protect its interests hereunder.
The Employee agrees to submit to any medical or other examination necessary for
such purpose and to assist and cooperate with the Employer in procuring such
insurance. The Employee agrees that the Employee shall have no right, title or
interest in and to such insurance whether presently existing or hereafter
procured.
10. NONDISCLOSURE. The Employee shall not, during the term of this
Agreement, or thereafter, without the express written permission of the
Employer: (a) disclose to any person, or permit any person to have access to,
any information or knowledge whatsoever relating to the Employer, or to any
successor entity thereto or its affiliates, business or affairs, obtained by the
Employee while in the employ of the Employer, whether prepared by the Employee
or others, to the extent such information or knowledge constitutes Confidential
Information as defined below, (b) use any such Confidential Information except
for the Employer's benefit, or (c) copy any papers, charts, documents or other
records or remove them from the Employer's property, except as may be necessary
in the performance of the Employee's duties hereunder. For purposes of this
Agreement, the term "Confidential Information" shall include all patient
information and charts, information regarding referring physicians and
optometrists, hospital arrangements, suppliers and supplies, vendors, and other
companies and individuals with whom the Employer has business relationships, any
financial or budgetary records, and all other information and knowledge, rules,
regulations and policies of the Employer, unless such information (1) was
-11-
<PAGE>
already known to the Employee at the time of the Employee's receipt thereof and
the Employee can demonstrate such knowledge by the Employee's written records;
(2) is or becomes publicly known through no act of the Employee; (3) is approved
for release by written authorization of the Employer; or (4) is compelled by
compulsory court process to disclose, provided that the Employee immediately
notifies the Employer of such process and tenders the defense of such process to
the Employer.
11. COVENANT NOT TO COMPETE. In consideration of the Employee being
granted certain stock options and for other valuable consideration, the Employee
agrees as follows:
(a) During the term of the Employee's employment by the Employer
and for a period of twelve (12) months immediately following the termination of
such employment (such period to be extended to include any period of violation
or period of time required for litigation to enforce this covenant) (the
"Non-Competition Period"), the Employee shall not, without the prior written
consent of the Employer, engage in or become associated with a Competitive
Activity. For purposes hereof, a Competitive Activity means any competitor with
the Employer's Managed Eye Care business identified by the Employer from time to
time prior to the termination of the Employee's employment or any other person
or entity that competes, or intends to compete, with the Employer's Managed Eye
Care business or is otherwise engaged in the Managed Eye Care business at any
time or from time to time during the Non-Competition Period. For purposes
hereof, the Employee shall be considered to have become "associated with a
Competitive Activity" if the Employee becomes directly or indirectly involved as
an owner, principal, employee, officer, director, independent contractor,
consultant, representative, stockholder, financial backer, agent, partner,
advisor, lender, or in any other individual
-12-
<PAGE>
representative capacity with any individual, partnership, corporation or other
organization that is engaged in a Competitive Activity. Notwithstanding the
foregoing, the Employee may make and retain investments during the
Non-Competition Period in less than one percent (1%) of the equity of any entity
engaged in a Competitive Activity, if such equity is listed on a national
securities exchange or regularly traded in an over-the-counter market.
(b) During the term of the Employee's employment by the Employer
and for a period of eighteen (18) months immediately following the termination
of such employment (such period to be extended to include any period of
violation or period of time required for litigation to enforce this covenant),
the Employee shall not, without the prior written consent of the Employer,
directly or indirectly: (1) employ, or solicit the employment of (whether as an
employee, officer, director, agent, consultant or independent contractor), any
person who was or is at any time during the previous eighteen (18) months an
employee, representative, officer or director of the Employer (except for such
employment by the Employer); or (2) solicit any company regarding Managed Eye
Care that was or is, at any time during the previous eighteen (18) months, a
customer of the Managed Care business of the Employer or that was solicited by
the Managed Care business of the Employer during the previous eighteen (18)
months.
12. ASSIGNMENT OF INVENTIONS. The Employee hereby assigns, and will
promptly disclose and assign, to the Employer exclusively, all inventions,
discoveries, improvements, devices, tools, machines, apparatuses, appliances,
designs, practices, processes, methods, formulae, products, trade secrets and
the like (hereinafter collectively called "inventions"), whether or not
patentable, which are directly or indirectly useful in or related to either the
Employer's business or to that of any of its affiliated or managing entities,
which the
-13-
<PAGE>
Employee shall make, originate, conceive or reduce to practice, either solely or
jointly with others, during the term of the Employee's employment by the
Employer or any of its affiliated or managing entities. The Employee further
agrees that during and after the term of this Agreement, without charge to the
Employer, the Employee will execute, acknowledge and deliver any and all papers
and take any other reasonable actions necessary or helpful for the Employer to
obtain patents for its own benefit on said inventions in any and all countries
or to otherwise protect and secure the Employer's interests in said inventions;
said patents, applications for patents and inventions to remain the property of
the Employer whether patented or not.
13. REMEDIES FOR BREACH. In the event of the Employee's breach or
threatened breach of any provision of Paragraph 10, 11, or 12 hereof, the
Employer shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either in law or in equity,
to obtain damages for breach of said paragraphs, or to enforce the specific
covenants therein, or to obtain an injunction restraining the Employee from the
continuation of such breach. Nothing herein shall be construed as prohibiting
the Employer from pursuing any other remedies available to it, including the
recovery of damages from the Employee.
14. PAYMENTS UPON CHANGE IN CONTROL.
(a)(i) If following a Change in Control of the Employer (as
defined in subparagraph 14(b) below), the Employee terminates his employment
with the Employer in accordance with Paragraph 7(c);
(ii) Then in the event of the termination set forth in
subparagraph 14(a)(i), the Employee shall be entitled to receive from the
Employer, as a severance payment for services
-14-
<PAGE>
previously rendered to the Employer, a lump sum cash payment as provided for in
subparagraph 14(a) (iii) below (subject to subparagraph 14(c) below)
(the "Severance Payment").
(iii) Subject to subparagraph 14(c) below, the amount of the
Severance Payment provided shall equal eighteen (18) months of the Base Salary.
The Severance Payment shall not be reduced by any compensation which the
Employee may receive from other employment with another employer after
termination of the Employee's employment with the Employer.
(b) A "Change in Control of the Employer," for purposes of this
Agreement, shall be deemed to have taken place, if:
(i) any person becomes the beneficial owner of fifty-one
percent (51%) or more of the total number of voting shares of the Employer; or
(ii) any person has commenced a tender or exchange offer
to acquire beneficial ownership of fifty-one percent (51%) or more of the total
number of voting shares of the Employer; or
(iii) less than two-thirds of the total membership of the
Board of Directors of the Employer shall be Continuing Directors. For purposes
of this Section 14(b), a Continuing Director shall mean any member of the Board
of Directors of the Employer who was a member of a Board as of the date hereof,
and any successor of a Continuing Director while such successor is a member of
the Board who is not a person described in Section 14(b)(i) or (ii) or an
Affiliate or Associate of such a person or of any such Affiliate or Associate
and is recommended or elected to succeed the Continuing Director by a majority
of the Continuing Directors. As used herein, "Affiliate" and Associates" shall
have the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in effect of
the date hereof (the "Exchange Act"). For purposes of this Section 14(b), a
"person"
-15-
<PAGE>
includes an individual, corporation, partnership, trust or group acting in
concert. A person for these purposes shall be deemed to be a beneficial owner as
that term is used in Rule 13d-3 under the Exchange Act.
(c) Notwithstanding any other provision of this Agreement or of
any other agreement, contract, or understanding heretofore or hereafter entered
into between the Employee and the Employer, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 14(c) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter adopted
by the Employer for the direct or indirect provision of compensation to the
Employee (including groups or classes of Participants or beneficiaries of which
the Employee is a member), whether or not such compensation is deferred, is in
cash, or is in the form of a benefit to or for the Employee (a "Benefit Plan"),
the Employee shall not have any right to receive any payment or other benefit
under this Agreement, any other Agreement, or any Benefit Plan if such payment
or benefit, taking into account all other payments or benefits to or for the
Employee under this Agreement, all Other Agreements, and all Benefit Plans,
would cause any payment to the Employee under this Agreement to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code (a
"Parachute Payment"). In the event that the receipt of any such payment or
benefit under this Agreement, any Other Agreement, or any Benefit Plan would
cause the Employee to be considered to have received a Parachute Payment under
this Agreement, then the Employee shall have the right, in the Employee's sole
discretion, to designate those payments or benefits under this Agreement, any
other Agreements, and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Employee under this
Agreement to be deemed to be a Parachute Payment.
-16-
<PAGE>
15. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or additions
to this Agreement shall be binding unless in writing and signed by all of the
parties hereto. The prior approval by the Employer's Chief Executive Officer
shall be required to authorize any amendments or additions to this Agreement, to
give any consents or waivers of provisions of this Agreement, or to take any
other action under this Agreement including any termination of employment with
or without cause.
16. CONTINUED ENFORCEABILITY AFTER CHANGE IN OWNERSHIP; ENFORCEABILITY
AGAINST SUCCESSORS AND TRANSFEREES. The parties intend that this Agreement shall
continue to be a legally valid, binding agreement, enforceable in accordance
with its terms, notwithstanding a change in the ownership of the Employer,
including, without limitation, a sale of substantially all of the Employer's
assets, merger or consolidation of the Employer, whether or not the Employer is
the surviving entity, and a sale of voting control of the Employer; and may be
assigned by the Employer. The parties agree that any transferee of all or
substantially all of the assets of the Employer or surviving or resulting
entity, as the case may be, shall be subject to the obligations of the Employer
hereunder, whether such transfer occurs by merger, operation of law, or
otherwise. The Employer agrees that before the consummation of any such transfer
(other than a transfer whereby such obligations are assumed by operation of law)
it will obtain the agreement of the transferee, enforceable by the Employee, to
assume such obligations. No such transfer shall release the Employer of its
obligations hereunder without the prior written consent of the Employee.
17. SECTION HEADINGS. The section headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
-17-
<PAGE>
18. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein. If, moreover, any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
excessively broad as to time, duration, geographical scope, activity or subject,
it shall be construed, by limiting and reducing it, so as to be enforceable to
the fullest extent compatible with the applicable law as it shall then appear.
19. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Connecticut, excluding the choice of law rules thereof.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, and together shall
constitute one and the same instrument.
21. PRIOR AGREEMENTS SUPERSEDED. Any prior agreement between the parties
relating to the employment by the Employer of the Employee, whether written or
oral, is hereby replaced and superseded by this Agreement and shall be of no
further force or effect after the date hereof.
22. ATTORNEY'S FEES. In the event either of the parties hereto shall
institute any action or proceeding against the other party relating to this
Agreement, the unsuccessful party in such action or proceeding shall reimburse
the successful party for its reasonable disbursements
-18-
<PAGE>
incurred in connection therewith, and for its reasonable attorneys fees incurred
in connection therewith.
23. WAIVER; CONSENTS. No consent or waiver, express or implied, by
either party hereto to or of any breach or default by the other party in the
performance by the other of its obligation hereunder shall be valid unless in
writing, and no such consent or waiver shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other party of the same or any other obligation of such party hereunder.
Failure on the part of either party to complain of any act or failure to act of
the other party or to declare the other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
rights hereunder. The granting of any consent or approval in any other instance
by or on behalf of either party shall not be construed to waive or limit the
need for such consent in any other or subsequent instance.
24. NOTICES. All notices, requests, and communications required or
permitted hereunder shall be in writing and shall be sufficiently given and
deemed to have been received upon personal delivery or, if mailed, upon the
first to occur of actual receipt and seventy-two (72) hours after being placed
in the United States mail, postage prepaid, registered or certified mail, return
receipt requested, addressed to the above parties as follows:
Employer Saratoga Resources, Inc.
(Address as of the closing of
the Contemplated Transaction)
87 Grandview Avenue
Waterbury, CT 06708
Employee: Samuel B. Petteway
11 Zebulon Court
Rocky Mount, NC 27804
-19-
<PAGE>
Employer: /s/ Dean Yimoyines
President
SARATOGA RESOURCES, INC.
ATTEST: /s/ Carrie F. Jantzen By: /s/ Samuel B. Petteway 8-9-99
----------------------- -----------------------------------------
Samuel B. Petteway, Employee
-20-
<PAGE>
NORTH CAROLINA
NASH COUNTY
THIS LEASE AGREEMENT, made and entered into this 1st day of March, 1997, by
and between D. BLAIR HARROLD and ALLAN L.M. BARKER, d/b/a HARROLD-BARKER
INVESTMENT COMPANY, hereinafter referred to as LESSORS, and CONSOLIDATED EYE
CARE, INC., a North Carolina Corporation hereinafter referred to as LESSEE.
W I T N E S S E T H:
WHEREAS Lessors and Lessee agree to the lease and rental of the premises
herein described on terms and conditions as herein set out; and
WHEREAS the Lessors and Lessee acknowledge that each will enjoy the mutual
benefits of this Lease;
NOW, THEREFORE, in consideration of the premises and further consideration
of the mutual covenants and agreements hereinabove set forth, Lessor and Lessee
have contracted and agreed, and the Lessors in consideration of the terms and
conditions herein described, hereby demise, let, and lease unto the Lessee, and
the Lessee hereby accepts the Lease from the Lessors, all of the certain
premises, together with the improvements, lying thereon and being located in
Rocky Mount, North Carolina, and more particularly described as follows:
112 Zebulon Court - B (Managed Care space in 112 Zebulon Court building)
TO HAVE AND TO HOLD the above described real estate unto the Lessee for a
period and upon the terms and conditions herein set out, together with all
privileges and appurtenances thereunto belonging to it the said Lessee, their
successors and assigns, as follows:
1. This Lease shall commence effective August 1st, 1997, unless sooner
terminated as hereinafter provided, and this Lease shall exist and continue
until the 1st day of August, 2002, the term being for five (5) years.
2. During year 1 and year 2 of the term of this Lease, the rent shall be
Thirteen Thousand Five Hundred and No/100 ($13,500.00) Dollars per year (based
on $7.50 per square foot for 1,800 square feet) payable in monthly installments
of One Thousand One Hundred Twenty Five and No/100 ($1,125.00) Dollars, per
month, payable monthly in advance on or before the 10th day of each month during
the term of the Lease. During year 3 and year 4 of the term of this Lease, the
rent shall be Fourteen Thousand Eight Hundred Fifty and No/100 ($14,850.00)
Dollars per year (based on $8.25 per square foot for 1,800 square feet) payable
in monthly installments of One Thousand Two Hundred Thirty Seven and 50/100
($1,237.50) Dollars, per month, payable monthly in advance on or before the 10th
day of each month during the term of the Lease.
3. The Lessee shall pay all taxes and assessments imposed by any lawful
authority upon its personal property and fixtures and any other improvements
placed in and upon the premises. The Lessee also agrees to pay all bills for
electricity, heat, air conditioning, water and
<PAGE>
other utilities used upon the leased premises. Lessee shall MAKE ALL REPAIRS and
IMPROVEMENTS to electrical, heating, air conditioning, water, plumbing, roof
system, under the amount of Two Thousand Five Hundred and No/100($2,500.00)
Dollars per occurrence of or manifestation of any required repair and
maintenance. The LESSOR agrees to pay for electrical, heating, air conditioning,
and external plumbing maintenance and repairs in EXCESS OF TWO THOUSAND FIVE
HUNDRED AND NO/100 ($2,500.00) DOLLARS, per occurrence or manifestation, and
further agrees to maintain and repair all exterior portions of the building,
except as specifically set forth above. The Lessee accepts the premises in the
condition in which they exist at the beginning of the term of this Lease, and
the LESSOR shall be under NO OBLIGATION TO IMPROVE OR REPAIR THE SAME, except as
specifically set out above. The Lessee shall have the right, at its own expense,
TO REMODEL AND MAKE IMPROVEMENTS to the interior as it elects, specifically
subject to notice to and approval of the Lessors. The Lessee shall be
responsible for cleanup, restoration and replacement of keys at the end of the
term of this Lease.
4. The Lessee may, at its own cost and expenses, install, erect and
maintain signs in and upon the lease premises, within the applicable codes and
ordinances provided, however the written consent of the Lessors must be obtained
for the location and design of all exterior signs.
5. Any fixtures, equipment and other personal property installed or
attached to the demised premises by the Lessee, will be at the expense of the
Lessee, and shall remain the property of the Lessee, and the Lessee shall have
the right at any time, provided it is not then in default hereunder, to remove
any and all such fixtures, provided, however, that in such event Lessee shall
repair any damage to the demised premises caused by such installation and
removal.
6. The Lessee shall maintain, at its own cost and expense, fire insurance,
and furnish to Lessors, liability insurance in the amount of $500,000 per
person/$1,000,000.00 per accident, and $100,000 property damage, which policy
shall name the Lessors as an additional insured. On each policy, Lessee shall
designate Lessors as a party insured and furnish Lessors with a certificates of
said insurance or applicable riders as issued or renewed.
7. The Lessors hereby covenant and warrant that they have a good right and
title to lease said premises; that it will suffer and permit the Lessee to
occupy, possess and enjoy said premises during the term herein set out, without
hinderance or molestation by the Lessors or from any persons claiming by or
under the Lessors, and will defend against any suit or action brought by such
person.
8. It is expressly agreed that Lessee shall not assign this Lease or these
premises without the written consent of the Lessors. It is expressly agreed that
Lessee shall not, under any circumstances, sublease the premises without the
prior written consent of the Lessors. Such consent, shall not be unreasonably
withheld by Lessors, and in the event of any assignment or sublease, Lessee
shall remain personally responsible to Lessors for performance of the terms of
this Lease,
<PAGE>
and any acceptance of rent by Lessors, by any assignee or sublease is not an
approval or consent of said assignee or sublease without compliance of the terms
above.
9. If the Lessee shall neglect or fail to pay any rent or monthly
installments of rent when due, or neglect of fail to do or perform any other
thing required of it and any of the covenants herein contained, on their part,
or to be performed or observed, and the Lessee is so notified in writing by
letter through registered mail addressed to its address as provided below and if
such default or defaults shall not be cured within 15 days after the sending of
said registered notice, the Lessors may terminate this Lease and may re-enter
upon the leased premises and may annul this Lease as regards all future rights
of the Lessee, and the Lessors shall have the legal rights and remedies
permitted by and available under the law of this State or for the collection of
any rent due and payable thereunder, without prejudice of any other right they
may have because of such default. No failure of the Lessors to exercise any
rights which it may have by reason of any default shall constitute a waiver of
any such rights with respect to any subsequent default. Under no circumstances
shall the Lessors be under any obligation whatsoever to release the Lessee from
any liability arising under this Lease for damages, which damages shall include,
but shall not necessarily be limited to, all rent due until the end of the term
of the Lease; nor shall Lessors be obligated to expend any sum to reduce or
litigate damages. If during the term of this Lease the premises shall be
partially damaged by fire or other casualty, but thereby rendered untenantable,
the same shall be repaired with diligence by the Lessors, at its expense, any
amount over the amount of $5,000.00. If the damage shall be so extensive as to
render the premises untenantable, the rent shall be proportionally paid up to
the time of such damage, and shall thenceforth cease until such time as the
premises shall be restored; but in such event the Lessors may elect whether or
not to restore said premises or to terminate the Lease. If the Lessors shall not
elect within 30 days after such damage to rebuild or restore said premises, then
this Lease shall forthwith terminate. In the event of the total destruction of
the premises by fire or other casualty, this Lease shall cease and terminate and
the Lessee shall be liable for the rent, proportionally, only up to the time of
such destruction, and the Lessee shall be entitled in such event, to receive a
proportional part of any advanced rent paid by it for the rent period during
which the leased premises are wholly destroyed.
10. If the whole of the premises shall be taken or condemned by imminent
domain for any public or quasi public use or purpose, then in that event, the
term of this Lease shall cease and terminate from the date of title vesting in
such proceedings, and the Lessee shall have no claim against the Lessors for the
value of the unexpired term of the Lease.
11. It is agreed that the Lessee shall have the right at the termination or
expiration of this Lease to remove within 15 days, at its own expense, all
trade fixtures, personal property and other installations, which it may have
placed or made on the premises, as provided in Paragraph 5 above, provided the
premises are restored by the Lessee to their original condition. If,
<PAGE>
after this 15 day period, there remains any personal property, fixtures, or
improvements of Lessee, the Lessors shall then restore or cause to be restored
such property for a period not to exceed 30 days, the costs and risks of such
restoring to be borne by the Lessee. If after this 30 days, the Lessee has
failed to cure such breach, any obligations arising from said breach, the
Lessors may then dispose of said property by whatever means deems necessary and
proper.
12. If the tenant shall voluntarily or involuntarily file a Petition in
bankruptcy, or be adjudicated bankrupt or insolvent, according to law, or shall
make an assignment for the benefit of creditors, then the Lessors may lawfully
enter onto the premises and repossess the same and expel the tenant and those
claiming under and through it and remove its effect without prejudice to any
remedies which the Lessors may otherwise have for arrears of rent, or breach of
covenant, and upon such entry, this Lease shall terminate, and the Lessee
covenants that in case of such termination, it will indemnify the Lessors
against all loss of rent which the Lessors may incur by reason of such
termination for the remainder of the term.
13. It is expressly agreed, as a matter of law, that in the event of any
hold over under this Lease, that said hold over shall be deemed a hold over
under a month to month, periodic tenancy, and no other term.
14. All references herein to relative pronoun shall be read in the plural
and in the singular, and in the masculine and in the feminine or neuter gender,
as the case may be. This agreement shall be binding upon the heirs, assigns and
successors of the parties hereon. This agreement shall be construed under the
laws of the State of North Carolina, and any change or amendment of this
agreement shall require the written consent of both parties.
15. All rentals, notices, or communications as required hereunder shall be
addressed and given to the parties as follows:
To Lessors: Harrold-Barker Investment Co.
P.O. Box 7185
112 Zebulon Court
Rocky Mount, NC 27804
To Lessee: Consolidated Eye Care, Inc.
112 Zebulon Court
Rocky Mount, NC 27804
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals in
duplicate originals, one of which is retained by each of the parties on the day
and year as first above written.
HARROLD-BARKER INVESTMENT CO.
By: /s/ D. BLAIR HARROLD
-----------------------------------
D. BLAIR HARROLD, Partner
By: /s/ ALLAN L.M. BARKER
-----------------------------------
ALLAN L.M. BARKER, Partner
<PAGE>
ATTEST: CONSOLIDATED EYE CARE, INC.
Robert G. Matkovich By: /s/ ALLAN BARKER
- ------------------------ ---------------------------------------
Secretary President
NORTH CAROLINA
NASH COUNTY
I, Alice A. Robbins, Notary Public, do hereby certify that D. Blair Harrold
and Allan L.M. Barker personally appeared before me this day and acknowledged
the due execution of the foregoing instrument.
WITNESS my hand and Notarial Seal, this 28th day of July, 1997.
/s/ Alice A. Robbins
--------------------------
Notary Public
My Commission expires January 12, 1998
------------------
NORTH CAROLINA
NASH COUNTY
I, Alice A. Robbins, Notary Public, certify that Robert G. Matkovich
personally came before me and acknowledged that he/she is Secretary of
Consolidated Eye Care, Inc., a corporation, and that by authority duly given and
as the act of the corporation the foregoing instrument was signed in its name by
its President, sealed with its Corporate Seal and attested by himself/herself as
its Secretary.
WITNESS my hand and Notarial Seal, this 28th day of July, 1997.
/s/ Alice A. Robbins
--------------------------
Notary Public
My Commission expires January 12, 1998
------------------
<PAGE>
NORTH CAROLINA
NASH COUNTY
THIS LEASE AGREEMENT, made and entered into this 1st day of March, 1997, by
and between D. BLAIR HARROLD and ALLAN L.M. BARKER, d/b/a HARROLD-BARKER
INVESTMENT COMPANY, hereinafter referred to as LESSORS, and CONSOLIDATED EYE
CARE, INC., a North Carolina Corporation hereinafter referred to as LESSEE.
W I T N E S S E T H:
WHEREAS Lessors and Lessee agree to the lease and rental of the premises
herein described on terms and conditions as herein set out; and
WHEREAS the Lessors and Lessee acknowledge that each will enjoy the mutual
benefits of this Lease;
NOW, THEREFORE, in consideration of the premises and further consideration
of the mutual covenants and agreements hereinabove set forth, Lessor and Lessee
have contracted and agreed, and the Lessors in consideration of the terms and
conditions herein described, hereby demise, let, and lease unto the Lessee, and
the Lessee hereby accepts the Lease from the Lessors, all of the certain
premises, together with the improvements, lying thereon and being located in
Rocky Mount, North Carolina, and more particularly described as follows:
110 Zebulon Court
TO HAVE AND TO HOLD the above described real estate unto the Lessee for a
period and upon the terms and conditions herein set out, together with all
privileges and appurtenances thereunto belonging to it the said Lessee, their
successors and assigns, as follows:
1. This Lease shall commence effective May 1st, 1997, unless sooner
terminated as hereinafter provided, and this Lease shall exist and continue
until the 1st day of May, 2002, the term being for five (5) years.
2. During year 1 and year 2 of the term of this Lease, the rent shall be
Forty Two Thousand Four Hundred and Nine and No/100 ($42,409.00) Dollars per
year (based on 4,039 square feet) payable in monthly installments of Three
Thousand Five Hundred Thirty Four and No/100 ($3,534.00) Dollars, per month,
payable monthly in advance on or before the 10th day of each month during the
term of the Lease. During year 3 and year 4 of the term of this Lease, the rent
shall be Forty Six Thousand Four Hundred Forty Eight and No/100 ($46,448.00)
Dollars per year (based on 4,039 square feet) payable in monthly installments of
Three Thousand Eight Hundred Seventy and No/100 ($3,870.00) Dollars, per month,
payable monthly in advance on or before the 10th day of each month during the
term of the Lease.
3. The Lessee shall pay all taxes and assessments imposed by any lawful
authority upon its personal property and fixtures and any other improvements
placed in and upon the premises. The Lessee also agrees to pay all bills for
electricity, heat, air conditioning, water and
<PAGE>
other utilities used upon the leased premises. Lessee shall MAKE ALL REPAIRS and
IMPROVEMENTS to electrical, heating, air conditioning, water, plumbing, roof
system, under the amount of Two Thousand Five Hundred and No/100($2,500.00)
Dollars per occurrence of or manifestation of any required repair and
maintenance. The LESSOR agrees to pay for electrical, heating, air conditioning,
and external plumbing maintenance and repairs in EXCESS OF TWO THOUSAND FIVE
HUNDRED AND NO/100 ($2,500.00) DOLLARS, per occurrence or manifestation, and
further agrees to maintain and repair all exterior portions of the building,
except as specifically set forth above. The Lessee accepts the premises in the
condition in which they exist at the beginning of the term of this Lease, and
the LESSOR shall be under NO OBLIGATION TO IMPROVE OR REPAIR THE SAME, except as
specifically set out above. The Lessee shall have the right, at its own expense,
TO REMODEL AND MAKE IMPROVEMENTS to the interior as it elects, specifically
subject to notice to and approval of the Lessors. The Lessee shall be
responsible for cleanup, restoration and replacement of keys at the end of the
term of this Lease.
4. The Lessee may, at its own cost and expense, install, erect and
maintain signs in and upon the lease premises, within the applicable codes and
ordinances provided, however the written consent of the Lessors must be obtained
for the location and design of all exterior signs.
5. Any fixtures, equipment and other personal property installed or
attached to the demised premises by the Lessee, will be at the expense of the
Lessee, and shall remain the property of the Lessee, and the Lessee shall have
the right at any time, provided it is not then in default hereunder, to remove
any and all such fixtures, provided, however, that in such event Lessee shall
repair any damage to the demised premises caused by such installation and
removal.
6. The Lessee shall maintain, at its own cost and expense, fire insurance,
and furnish to Lessors, liability insurance in the amount of $500,000 per
person/$1,000,000.00 per accident, and $100,000 property damage, which policy
shall name the Lessors as an additional insured. On each policy, Lessee shall
designate Lessors as a party insured and furnish Lessors with a certificate of
said insurance or applicable riders as issued or renewed.
7. The Lessors hereby covenant and warrant that they have a good right and
title to lease said premises; that it will suffer and permit the Lessee to
occupy, possess and enjoy said premises during the term herein set out, without
hinderance or molestation by the Lessors or from any persons claiming by or
under the Lessors, and will defend against any suit or action brought by such
person.
8. It is expressly agreed that Lessee shall not assign this Lease or these
premises without the written consent of the Lessors. It is expressly agreed that
Lessee shall not, under any circumstances, sublease the premises without the
prior written consent of the Lessors. Such consent, shall not be unreasonably
withheld by Lessors, and in the event of any assignment or sublease, Lessee
shall remain personally responsible to Lessors for performance of the terms of
this Lease,
<PAGE>
and any acceptance of rent by Lessors, by any assignee or sublease is not an
approval or consent of said assignee or sublease without compliance of the
terms above.
9. If the Lessee shall neglect or fail to pay any rent or monthly
installments of rent when due, or neglect or fail to do or perform any other
thing required of it and any of the covenants herein contained, on their part,
or to be performed or observed, and the Lessee is so notified in writing by
letter through registered mail addressed to its address as provided below and if
such default or defaults shall not be cured within 15 days after the sending of
said registered notice, the Lessors may terminate this Lease and may re-enter
upon the leased premises and may annul this Lease as regards all future rights
of the Lessee, and the Lessors shall have the legal rights and remedies
permitted by and available under the law of this State or for the collection of
any rent due and payable thereunder, without prejudice of any other right they
may have because of such default. No failure of the Lessors to exercise any
rights which it may have by reason of any default shall constitute a waiver of
any such rights with respect to any subsquent default. Under no circumstances
shall the Lessors be under any obligation whatsoever to release the Lessee from
any liability arising under this Lease for damages, which damages shall include,
but shall not necessarily be limited to, all rent due until the end of the term
of the Lease; nor shall Lessors be obligated to expend any sum to reduce or
litigate damages. If during the term of this Lease the premises shall be
partially damaged by fire or other casualty, but thereby rendered untenantable,
the same shall be repaired with diligence by the Lessors, at its expense, any
amount over the amount of $5,000.00. If the damage shall be so extensive as to
render the premises untenantable, the rent shall be proportionally paid up to
the time of such damage, and shall thenceforth cease until such time as the
premises shall be restored; but in such event the Lessors may elect whether or
not to restore said premises or to terminate the Lease. If the Lessors shall not
elect within 30 days after such damage to rebuild or restore said premises, then
this Lease shall forthwith terminate. In the event of the total destruction of
the premises by fire or other casualty, this Lease shall cease and terminate and
the Lessee shall be liable for the rent, proportionally, only up to the time of
such destruction, and the Lessee shall be entitled in such event, to receive a
proportional part of any advanced rent paid by it for the rent period during
which the leased premises are wholly destroyed.
10. If the whole of the premises shall be taken or condemned by imminent
domain for any public or quasi public use or purpose, then in that event, the
term of this Lease shall cease and terminate from the date of title vesting in
such proceedings, and the Lessee shall have no claim against the Lessors for the
value of the unexpired term of the Lease.
11. It is agreed that the Lessee shall have the right at the termination or
expiration of this Lease to remove within 15 days, at its own expense, all trade
fixtures, personal property and other installations, which it may have placed or
made on the premises, as provided in Paragraph 5 above, provided the premises
are restored by the Lessee to their original condition. If
<PAGE>
after this 15 day period, there remains any personal property, fixtures, or
improvements of Lessee, the Lessors shall then restore or cause to be restored
such property for a period not to exceed 30 days, the costs and risks of such
restoring to be borne by the Lessee. If after this 30 days, the Lessee has
failed to cure such breach, any obligations arising from said breach, the
Lessors may then dispose of said property by whatever means deems necessary and
proper.
12. If the tenant shall voluntarily or involuntarily file a Petition in
bankruptcy, or be adjudicated bankrupt or insolvent, according to law, or shall
make an assignment for the benefit of creditors, then the Lessors may lawfully
enter onto the premises and repossess the same and expel the tenant and those
claiming under and through it and remove its effect without prejudice to any
remedies which the Lessors may otherwise have for arrears of rent, or breach of
covenant, and upon such entry, this Lease shall terminate, and the Lessee
covenants that in case of such termination, it will indemnify the Lessors
against all loss of rent which the Lessors may incur by reason of such
termination for the remainder of the term.
13. It is expressly agreed, as a matter of law, that in the event of any
hold over under this Lease, that said hold shall be deemed a hold over under a
month to month, periodic tenancy, and no other term.
14. All references herein to relative pronoun shall be read in the plural
and in the singular, and in the masculine and in the feminine or neuter gender,
as the case may be. This agreement shall be binding upon the heirs, assigns and
successors of the parties hereto. This agreement shall be construed under the
laws of the State of North Carolina, and change or amendment of this agreement
shall require the written consent of both parties.
15. All rentals, notices, or communications as required hereunder shall be
addressed and given to the parties as follows:
To Lessors: Harrold-Barker Investment Co.
P.O. Box 7185
112 Zebulon Court
Rocky Mount, NC 27804
To Lessee: Consolidated Eye Care
112 Zebulon Court
Rocky Mount, NC 27804
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals in
duplicate originals, one of which is retained by each of the parties on the day
and year as first above written.
HARROLD-BARKER INVESTMENT CO.
By: /s/ D. BLAIR HARROLD
-----------------------------------
D. BLAIR HARROLD, Partner
By: /s/ ALLAN L.M. BARKER
-----------------------------------
ALLAN L.M. BARKER, Partner
<PAGE>
ATTEST: CONSOLIDATED EYE CARE, INC.
Robert G. Matkovich By: /s/ ALLAN L.M. BARKER
- ------------------------ ---------------------------------------
Secretary President
NORTH CAROLINA
NASH COUNTY
I, Alice A. Robbins, Notary Public, do hereby certify that D. Blair Harrold
and Allan L.M. Barker personally appeared before me this day and acknowledged
the due execution of the foregoing instrument.
WITNESS my hand and Notarial Seal, this 1st day of May, 1997.
/s/ Alice A. Robbins
--------------------------
Notary Public
My Commission expires: January 12, 1998
------------------
NORTH CAROLINA
NASH COUNTY
I, Alice A. Robbins, Notary Public, certify that Robert G. Matkovich
personally came before me and acknowledged that he/she is Secretary of
Consolidated Eye Care, Inc., a corporation, and that by authority duly given and
as the act of the corporation the foregoing instrument was signed in its name by
its President, sealed with its Corporate Seal and attested by himself/herself as
its Secretary.
WITNESS my hand and Notarial Seal, this 1st day of May, 1997.
/s/ Alice A. Robbins
--------------------------
Notary Public
My Commission expires: January 12, 1998
------------------
<PAGE>
NORTH CAROLINA
NASH COUNTY
THIS LEASE AGREEMENT, made and entered into this 1st day of March, 1997, by
and between D. BLAIR HARROLD and ALLAN L.M. BARKER, d/b/a HARROLD-BARKER
INVESTMENT COMPANY, hereinafter referred to as LESSORS, and CONSOLIDATED EYE
CARE, INC., a North Carolina Corporation hereinafter referred to as LESSEE.
W I T N E S S E T H:
WHEREAR Lessors and Lessee agree to the lease and rental of the premises
herein described on terms and conditions as herein set out; and
WHEREAS the Lessors and Lessee acknowledge that each will enjoy the mutual
benefits of this Lease;
NOW, THEREFORE, in consideration of the premises and further consideration
of the mutual covenants and agreements hereinabove set forth, Lessor and Lessee
have contracted and agreed, and the Lessors in consideration of the terms and
conditions herein described, hereby demise, let, and lease unto the Lessee, and
the Lessee hereby accepts the Lease from the Lessors, all of the certain
premises, together with the improvements, lying thereon and being located in
Rocky Mount, North Carolina, and more particularly described as follows:
112 Zebulon Court - A
TO HAVE AND TO HOLD the above described real estate unto the Lessee for a
period and upon the terms and conditions herein set out, together with all
privileges and appurtenances thereunto belonging to it the said Lessee, their
successors and assigns, as follows:
1. This Lease shall commence effective May 1st, 1997, unless sooner
terminated as hereinafter provided, and this Lease shall exist and continue
until the 1st day of May, 2002, the term being for five (5) years.
2. During year 1 and year 2 of the term of this Lease, the rent shall be
One Hundred Twenty Two Thousand Four Hundred Sixty Seven and No/100
($122,467,00) Dollars per year (based on 15,085 square feet) payable in monthly
installments of Ten Thousand Two Hundred Five and No/100 ($10,250.00) Dollars,
per month, payable monthly in advance on or before the 10th day of each month
during the term of the Lease. During year 3 and year 4 of the term of this
Lease, the rent shall be One Hundred Thirty Seven Thousand Five Hundred Fifty
Two and No/100 ($137,552.00) Dollars per year (based on 15,085 square feet)
payable in monthly installments of Eleven Thousand Four Hundred Sixty Two and
No/100 ($11,462.00) Dollars, per month, payable monthly in advance on or before
the 10th day of each month during the term of the Lease.
3. The Lessee shall pay all taxes and assessments imposed by any lawful
authority upon its personal property and fixtures and any other improvements
placed in and upon the premises. The Lessee also agrees to pay all bills for
electricity, heat, air conditioning, water and
<PAGE>
other utilities used upon the leased premises. Lessee shall MAKE ALL REPAIRS
and IMPROVEMENTS to electrical, heating, air conditioning, water, plumbing,
roof system, under the amount of Two Thousand Five Hundred and No/100($2,500.00)
Dollars per occurrence of or manifestation of any required repair and
maintenance. The LESSOR agrees to pay for electrical, heating, air conditioning,
and external plumbing maintenance and repairs in EXCESS OF TWO THOUSAND FIVE
HUNDRED AND NO/100 ($2,500.00) DOLLARS, per occurrence or manifestation, and
further agrees to maintain and repair all exterior portions of the building,
except as specifically set forth above. The Lessee accepts the premises in the
condition in which they exist at the beginning of the term of this Lease, and
the LESSOR shall be under NO OBLIGATION TO IMPROVE OR REPAIR THE SAME, except
as specifically set out above. The Lessee shall have the right, at its own
expense, TO REMODEL AND MAKE IMPROVEMENTS to the interior as it elects,
specifically subject to notice to and approval of the Lessors. The Lessee shall
be responsible for cleanup, restoration and replacement of keys at the end of
the term of this Lease.
4. The Lessee may, at its own cost and expense, install, erect and
maintain signs in and upon the lease premises, within the applicable codes and
ordinances provided, however the written consent of the Lessors must be obtained
for the location and design of all exterior signs.
5. Any fixtures, equipment and other personal property installed or
attached to the demised premises by the Lessee, will be at the expense of the
Lessee, and shall remain the property of the Lessee, and the Lessee shall have
the right at any time, provided it is not then in default hereunder, to remove
any and all such fixtures, provided, however, that in such event Lessee shall
repair any damage to the demised premises caused by such installation and
removal.
6. The Lessee shall maintain, at its own cost and expense, fire insurance,
and furnish to Lessors, liability insurance in the amount of $500,000 per
person/$1,000,000.00 per accident, and $100,000 property damage, which policy
shall name the Lessors as an additional insured. On each policy, Lessee shall
designate Lessors as a party insured and furnish Lessors with a certificate of
said insurance or applicable riders as issued or renewed.
7. The Lessors hereby covenant and warrant that they have a good right and
title to lease said premises; that it will suffer and permit the Lessee to
occupy, possess and enjoy said premises during the term therein set out, without
hinderance or molestation by the Lessors or from any persons claiming by or
under the Lessors, and will defend against any suit or action brought by such
person.
8. It is expressly agreed that Lessee shall not assign this Lease or these
premises without the written consent of the Lessors. It is expressly agreed that
Lessee shall not, under any circumstances, sublease the premises without the
prior written consent of the Lessors. Such consent, shall not be unreasonably
withheld by Lessors, and in the event of any assignment or sublease, Lessee
shall remain personally responsible to Lessors for performance of the terms of
this Lease,
<PAGE>
and any acceptance of rent by Lessors, by any assignee or sublease is not an
approval or consent of said assignee or sublease without compliance of the terms
above.
9. If the Lessee shall neglect or fail to pay any rent or monthly
installments of rent when due, or neglect or fail to do or perform any other
thing required of it and any of the covenants herein contained, on their part,
or to be performed or observed, and the Lessee is so notified in writing by
letter through registered mail addressed to its address as provided below and if
such default or defaults shall not be cured within 15 days after the sending of
said registered notice, the Lessors may terminate this Lease and may re-enter
upon the leased premises and may annul this Lease as regards all future rights
of the Lessee, and the Lessors shall have the legal rights and remedies
permitted by and available under the law of this State or for the collection of
any rent due and payable thereunder, without prejudice of any other right they
may have because of such default. No failure of the Lessors to exercise any
rights which it may have by reason of any default shall constitute a waiver of
any such rights with respect to any subsequent default. Under no circumstances
shall the Lessors be under any obligation whatsoever to release the Lessee from
any liability arising under this Lease for damages, which damages shall include,
but shall not necessarily be limited to, all rent due until the end of the term
of the Lease; nor shall Lessors be obligated to expend any sum to reduce or
litigate damages. If during the term of this Lease the premises shall be
partially damaged by fire or other casualty, but thereby rendered untenantable,
the same shall be repaid with diligence by the Lessors, at its expense, any
amount over the amount of $5,000.00. If the damage shall be so extensive as to
render the premises untenantable, the rent shall be proportionally paid up to
the time of such damage, and shall thenceforth cease until such time as the
premises shall be restored; but in such event the Lessors may elect whether or
not to restore said premises or to terminate the Lease. If the Lessors shall not
elect within 30 days after such damage to rebuild or restore said premises, then
this Lease shall forthwith terminate. In the event of the total destruction of
the premises by fire or other casualty, this Lease shall cease and terminate and
the Lessee shall be liable for the rent, proportionally, only up to the time of
such destruction, and the Lessee shall be entitled in such event, to receive a
proportional part of any advanced rent paid by it for the rent period during
which the leased premises are wholly destroyed.
10. If the whole of the premises shall be taken or condemned by imminent
domain for any public or quasi public use or purpose, then in that event, the
term of this Lease shall cease and terminate from the date of title vesting in
such proceedings, and the Lessee shall have no claim against the Lessors for the
value of the unexpired term of the Lease.
11. It is agreed that the Lessee shall have the right at the termination or
expiration of this Lease to remove within 15 days, at its own expense, all
trade fixtures, personal property and other installations, which it may have
placed or made on the premises, as provided in Paragraph 5 above, provided the
premises are restored by the Lessee to their original condition. If,
<PAGE>
after this 15 day period, there remains any personal property, fixtures, or
improvements of Lessee, the Lessors shall then restore or cause to be restored
such property for a period not to exceed 30 days, the costs and risks of such
restoring to be borne by the Lessee. If after this 30 days, the Lessee has
failed to cure such breach, any obligations arising from said breach, the
Lessors may then dispose of said property by whatever means deems necessary and
proper.
12. If the tenant shall voluntarily or involuntarily file a Petition in
bankruptcy, or be adjudicated bankrupt or insolvent, according to law, or shall
make an assignment for the benefit of creditors, then the Lessors may lawfully
enter onto the premises and repossess the same and expel the tenant and those
claiming under and through it and remove its effect without prejudice to any
remedies which the Lessors may otherwise have for arrears of rent, or breach of
covenant, and upon such entry, this Lease shall terminate, and the Lessee
covenants that in case of such termination, it will indemnify the Lessors
against all loss of rent which the Lessors may incur by reason of such
termination for the remainder of the term.
13. It is expressly agreed, as a matter of law, that in the event of any
hold over under this Lease, that said hold shall be deemed a hold over under a
month to month, periodic tenancy, and no other term.
14. All references herein to relative pronoun shall be read in the plural
and in the singular, and in the masculine and in the feminine or neuter gender,
as the case may be. This agreement shall be binding upon the heirs, assigns and
successors of the parties hereto. This agreement shall be construed under the
laws of the State of North Carolina, and change or amendment of this agreement
shall require the written consent of both parties.
15. All rentals, notices, or communications as required hereunder shall be
addressed and given to the parties as follows:
To Lessors: Harrold-Barker Investment Co.
P.O. Box 7185
112 Zebulon Court
Rocky Mount, NC 27804
To Lessee: Consolidated Eye Care, Inc.
112 Zebulon Court
Rocky Mount, NC 27804
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals in
duplicate originals, one of which is retained by each of the parties on the day
and year as first above written.
HARROLD-BARKER INVESTMENT CO.
By: /s/ D. BLAIR HARROLD
-----------------------------------
D. BLAIR HARROLD, Partner
By: /s/ ALLAN L.M. BARKER
-----------------------------------
ALLAN L.M. BARKER, Partner
<PAGE>
ATTEST: CONSOLIDATED EYE CARE, INC.
/s/ Robert G. Matkovich By: /s/ ALLAN L.M. BARKER
- ------------------------ ---------------------------------------
Secretary President
NORTH CAROLINA
NASH COUNTY
I, Alice A. Robbins, Notary Public, do hereby certify that D. Blair Harrold
and Allan L.M. Barker personally appeared before me this day and acknowledged
the due execution of the foregoing instrument.
WITNESS my hand and Notarial Seal, this 1st day of May, 1997.
/s/ Alice A. Robbins
--------------------------
Notary Public
My Commission expires: January 12, 1998
------------------
NORTH CAROLINA
NASH COUNTY
I, Alice A. Robbins, Notary Public, do hereby certify that Robert G.
Matkovich personally came before me and acknowledged that he/she is Secretary of
Consolidated Eye Care, Inc., a corporation, and that by authority duly given and
as the act of the corporation the foregoing instrument was signed in its name by
its President, sealed with its Corporate Seal and attested by himself/herself as
its Secretary.
WITNESS my hand and Notarial Seal, this 1st day of May, 1997.
/s/ Alice A. Robbins
--------------------------
Notary Public
My Commission expires: January 12, 1998
------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,196
<SECURITIES> 0
<RECEIVABLES> 11,220
<ALLOWANCES> (168)
<INVENTORY> 3,294
<CURRENT-ASSETS> 25,395
<PP&E> 17,121
<DEPRECIATION> (7,210)
<TOTAL-ASSETS> 68,444
<CURRENT-LIABILITIES> 25,327
<BONDS> 38,459
0
1
<COMMON> 9
<OTHER-SE> 4,326
<TOTAL-LIABILITY-AND-EQUITY> 4,336
<SALES> 62,895
<TOTAL-REVENUES> 62,895
<CGS> 31,423
<TOTAL-COSTS> 62,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,588
<INCOME-PRETAX> 331
<INCOME-TAX> 119
<INCOME-CONTINUING> 212
<DISCONTINUED> (317)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (105)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
