<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 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)
DELAWARE 76-0453392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
87 GRANDVIEW AVENUE, WATERBURY, CONNECTICUT 06708
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(203) 596-2236
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.001 par value American Stock Exchange
- ------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 15, 2000, was $30,800,564.
The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of March 15, 2000 was 12,543,557 shares.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
OPTICARE HEALTH SYSTEMS, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
OptiCare Health Systems, Inc. is an integrated eye care services company
focused on providing laser correction, managed care and professional eye care
services. We currently own, operate and develop laser and ambulatory surgery
centers and provide systems, including Internet-based software solutions, to eye
care professionals. We also provide managed eye care services to health plans
and operate integrated eye health centers, retail optical stores and a buying
group program.
In the fourth quarter of 1999, our board of directors approved a new
corporate strategy to focus on the growth of laser correction in the eye care
industry. As part of our new growth strategy, we reorganized our operations from
two divisions into the following three divisions: Laser Correction and
Professional Services, Managed Care Services, and Other Integrated Services.
RECENT DEVELOPMENTS
Agreement to Acquire Vision Twenty-One
On February 10, 2000, we entered into a merger agreement with Vision
Twenty-One, Inc. The transaction provides for 6,000,000 shares, which number is
subject to adjustment as described in the merger agreement, of our common stock
to be issued to shareholders of Vision Twenty-One and the assumption of
approximately $60 million of Vision Twenty One's outstanding debt. The merger
will combine the laser correction and managed eye care businesses of the two
companies. The merger agreement also calls for Vision Twenty-One to continue to
divest certain of its other operating businesses prior to closing. Following the
closing of the merger, we expect to have over 10,000,000 managed eye care lives
and a national provider panel of approximately 11,000 practicing
ophthalmologists and optometrists, providing us with a unique platform to
accelerate the growth of our laser correction and ambulatory surgery segments.
The transaction is subject to certain closing conditions, including
regulatory approvals, the approval of Vision Twenty-One's and our shareholders,
and the restructuring of certain debt obligations of us and Vision Twenty-One,
as well as a financing to provide not less than $30 million of equity or
mezzanine capital.
Sale of Registered Shares
During January 2000, we sold in the aggregate 3,571,429 registered shares
of common stock at a price of $3.50 per share. We received proceeds from the
offering of approximately $12.5 million, including the cancellation of a $2
million note previously issued by us. See "Certain Relationships and Related
Transactions - Arrangements with Marlin Capital, LLP." The proceeds have and
will be used to pay down indebtedness, to expand our laser correction and
professional services division, and for general corporate purposes.
3
<PAGE>
THE EYE CARE INDUSTRY
Overview
The eye care market includes both eye care services and optical products.
In the eye care services market, eye health professionals, including
ophthalmologists and optometrists, provide diagnostic eye examinations and
treatment interventions to address complex eye and vision conditions. The most
common conditions addressed by eye care professionals are nearsightedness,
farsightedness and astigmatism. These eye and vision conditions have
historically been treated with pharmaceuticals, prescription glasses, contact
lenses or some combination of these treatments. With the introduction of LASIK
in 1996, eye care professionals are beginning to use laser correction as an
additional treatment alternative for these three conditions. The optical
products portion of the eye care market consists of the manufacture,
distribution and sale of optical goods, including corrective lenses, eyeglasses,
frames, contact lenses and other related optical products.
In the U.S., eye care services have traditionally been delivered by
ophthalmologists and optometrists. Ophthalmologists are specifically trained
physicians who have completed four years of medical school, obtained a medical
degree and have received specialty training in ophthalmology. In addition to
diagnostic examinations, ophthalmologists are licensed to perform ophthalmic
surgery. Optometrists complete four years of optometry school and are generally
licensed to perform routine eye exams and prescribe corrective optical goods.
Optometrists do not perform surgery, but often provide pre-and post-operative
care. There are approximately 32,000 practicing optometrists and 22,000
practicing ophthalmologists in the U.S.
According to the Vision Council of America, 163 million people, or
approximately 60% of the U.S. population, utilized eye care services in 1998,
and 60% of those eye care consumers purchased eye wear products. Spending in
1998 for both services and products is estimated to be over $55 billion,
increasing at approximately 6% per year.
Laser Correction
Recently, new surgical technologies and procedures have been introduced for
surgical correction of common vision conditions. Within the eye care industry,
one sector that is experiencing rapid growth is laser correction. Although
earlier applications for laser based surgical treatment of eye disorders, such
as photorefractive keratotomy, or PRK, were introduced in the late 1980's,
widespread interest in laser correction did not occur until the introduction and
approval of LASIK. Introduced in 1996 in the U.S., LASIK has led to a dramatic
increase in the popularity of laser correction surgery.
The three most common conditions which are candidates for laser correction
are:
o nearsightedness, which is caused by a steepening of the cornea,
resulting in the blurring of distant objects;
o farsightedness, which is caused by a flattening of the cornea,
resulting in the blurring of close objects; and
o astigmatism, in which images are not focused on any point due to the
varying curvature of the eye
4
<PAGE>
along different axes, which results in a distorted view of images.
In the LASIK procedure, an ophthalmologist uses an automated microsurgical
instrument to peel back a thin layer of corneal tissue, which remains hinged to
the eye. A number of laser pulses are then applied to the cornea to remove
tissue and thereby correct the patient's vision by reshaping the patient's
cornea. After the surgeon replaces the layer of corneal tissue, no bandages are
required and most patients experience no discomfort. A LASIK procedure typically
takes 10 to 15 minutes from set-up to completion and is performed in an
outpatient setting. At this time, only ophthalmologists are licensed to perform
LASIK, although optometrists are often involved in providing pre-and
post-operative care.
Because of the effectiveness and convenience of LASIK, laser correction has
grown from approximately 430,000 procedures to be performed in 1998 to industry
estimates of 980,000 procedures to be performed in 1999. Despite this rapid
growth, the number of laser correction patients in 1998 represented less than
0.3% of the 163 million people with refractive vision conditions in the U.S.
Further, unlike most other eye-related surgical procedures, laser correction is
an elective procedure for which patients pay and are generally not reimbursed by
third party payors.
Laser correction has been practiced in the United States only since 1996,
and so there is only minimal information available for medical and scientific
study of its long-term effects. Long-term follow-up data may reveal additional
complications that may have a material adverse effect on acceptance of laser
correction. Concern over the safety of laser correction procedures could
adversely affect market acceptance of laser correction or result in adverse
regulatory action, including product recalls. Any of these factors could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Concerns about the safety and effectiveness of laser correction include
predictability and stability of results. Potential complications and side
effects include:
o post-operative discomfort;
o an increase in the light-scattering properties of the cornea during
healing (corneal hazing);
o glare/halos (undesirable visual sensations produced by bright
lights);
o decreases in contrast sensitivity;
o temporary increases in pressure within the eye in reaction to
medication;
o modest fluctuations in focusing capabilities during healing;
o modest decreases in best corrected vision (i.e., with corrective
lenses);
o unintended over- or under-corrections;
o decline in corrective effect;
o disorders in corneal healing, corneal scars and corneal ulcers; and
o induced astigmatism.
5
<PAGE>
Managed care
According to InterStudy, a health care research firm, total 1998 U.S.
enrollment in health maintenance organizations, the most common type of managed
care plan, was 76.6 million. This represents a 14% increase in membership versus
1997. Almost all managed care plans cover medical/surgical treatment of eye
disorders and many also provide vision care benefits, including routine eye
exams or optical products. According to the 1999 U.S. Optical Industry Handbook,
66% of consumers seeking eye care services received either full or partial
reimbursement from a third-party insurance or managed care plan.
We believe that enrollment in managed care plans and, therefore, the
population with coverage of eye care services will continue to grow. We believe
this trend will be supported by managed care plans offering enhanced vision and
eye care benefits in order to more aggressively compete for potential
membership. We also believe that the management of eye care services and
products is specialized and best provided by companies that focus on these
services. Given its success in both acquiring new customers and retaining
existing customers, we believe this market segment has significant growth
potential.
Other eye care products and services
Although vision correction techniques and technologies are growing
dramatically, the demand for basic optical goods, including corrective lenses,
eyeglass frames and other optical products, and eye health surgery, remains
significant. Of the $55 billion eye care market, consumers spend approximately
$16.3 billion on retail optical products. Approximately 83%, or $13.5 billion,
is spent on lenses and frames, while approximately 12%, or $2 billion, is spent
on contact lenses.
We also expect the demand for eye surgery other than vision to show steady
growth. Common eye disorders include glaucoma, macular degeneration, diabetic
retinopathy and cataracts. We believe that the aging of the population,
including the "baby boom" generation, will increase the demand for medical and
surgical treatment of these disorders. Glaucoma affects approximately 3 million
people in the U.S. and is projected by industry sources to double by 2030.
Cataract surgery, the most widely performed eye care surgical procedure in the
U.S., is typically performed on an outpatient basis using local anesthesia, and
the procedure time is typically less than 30 minutes. In 1997, over 2.3 million
cataract procedures were performed in the U.S. Since the preponderance of these
other eye disorders affect patients over the age of 65, the Medicare program is
the primary payor for treatment of these disorders, including surgery.
DESCRIPTION OF BUSINESS DIVISIONS
As a result of our expectations for the growth of laser correction, we have
reorganized our operations from two business divisions to three:
o Laser Correction and Professional Services. We develop laser
correction centers and provide marketing, systems, software and other
services to eye care professionals.
o Managed Care Services. We contract with managed care plans to manage
the eye health portion of managed care plans.
o Other Integrated Services. We own and operate fully integrated eye
health centers, retail optical
6
<PAGE>
stores and a buying group program.
Laser Correction and Professional Services Division
Laser Correction. We have two business models for providing laser
correction and ambulatory surgery services. The first model involves ownership
and operation of laser vision correction and ambulatory surgical centers. In the
second model, we operate the OptiCare Laser Advantage(Trademark) program, in
which we develop laser correction centers for independent ophthalmologists, and
participate on a fee-per-procedure basis in the growth of that center.
We own and operate four surgery centers in Connecticut, one of which is a
laser correction center. In our ambulatory surgery centers, ophthalmic surgeons
perform a range of eye care surgical procedures, including cataract surgery, and
surgical treatment of glaucoma, macular degeneration and diabetic retinopathy.
One of the ambulatory surgery centers is being converted from an eye-care-only
center to a multi-specialty facility, permitting ophthalmic surgery and other
types of non-eye care surgery to be performed there. In these centers, we bill
patients (or their insurers, HMO's, Medicare, Medicaid or other responsible
third-party payors) for use of the surgery center facility, and the surgeons
bill the patients separately for their services. For laser correction, patients
are billed directly and generally we are not reimbursed by third party payers.
Our ambulatory facility in Waterbury, Connecticut is approved for the payment of
facility fees by most health plans and our other surgery facilities are Medicare
approved. We have contracted with OptiCare P.C. to provide surgical and other
services to patients at the ambulatory surgical centers. OptiCare P.C., is
wholly owned by Dean J. Yimoyines, M.D., Chairman of the Board, President and
Chief Executive Officer and a beneficial holder of 3.1% of the Company's common
stock.
In the OptiCare Laser Advantage(Trademark) program, we use our
marketplace position to identify, screen and negotiate agreements with
prospective ophthalmology practices which already perform laser correction
surgery at separate surgery centers, but have no ownership position in the
center. Working with these physicians and the laser manufacturer, we will
participate in developing, equipping, training and implementing a new laser
correction center to be owned by the practice. We will also provide a laser
vision correction marketing program and ongoing marketing support for the
center. We intend to enter into agreements which provide that we be paid by each
practice on a multi-year, fixed-price-per procedure basis, with guaranteed
minimum procedure volume. As the laser correction volume of the center grows, we
receive increasing revenues. To support the program, we have executed a
strategic partnership agreement with Summit Technology, an excimer laser
manufacturer and anticipate agreements with other laser manufacturers. We opened
our first center under this business model in Rocky Mount, N.C.
Professional Services. Beyond establishing laser vision correction centers,
we sell a broad range of other management services and eye care systems to eye
care professionals, principally ophthalmologists and optometrists.
As a result of our acquisition on October 1, 1999, of Cohen Systems, Inc.,
we provide eye care systems and software, in which we sell Internet based and
point-of-sale systems solutions for optometry practices, retail optical
locations and manufacturing laboratories. These products support eye health
practice management, point-of-sale, and inventory control applications. As of
March 15, 2000, we had approximately 150 retail customers and 100 lens
manufacturing customers for various eye care systems and software services
throughout the United States and Canada. In addition to these products, we have
developed and sell Internet based order entry software systems that captures and
links all eye health patient data, including providing such data to a remote
manufacturing location for immediate processing of patient optical goods orders.
7
<PAGE>
Our Health Service Organization ("HSO") operations provide marketing,
managed care and other administrative services to individual ophthalmology and
optometry practices. As of March 15, 2000, we had HSO agreements in place with
31 ophthalmology and optometry practices, having in the aggregate 56 facilities,
pursuant to which we offer core and supplemental services. These agreements
generally run for a fifteen-year term. Under these agreements we receive a
percentage of the revenues earned by these practices (generally 3% of revenues).
In addition to these services, the practices may obtain various supplemental
services at agreed upon rates, which are purchased on a menu basis. In the HSO
arrangements, we offer core services including access to its buying group
program and marketing assistance.
Our HSO customers are also allowed access to supplemental services
including certain laser correction programs, systems administration and human
resources services.
We believe that there will be increasing demand for management and
information systems solutions for independent practitioners who are not
interested in a traditional physician practice management model. Management
believes that these independent practitioners, which make up approximately 95%
of practicing ophthalmologists, still require assistance in a range of
administrative, marketing and information systems and software services. We
believe these doctors have the potential to benefit from the Company's services
in this area.
Managed Care Services Division
We have significant expertise in providing managed care services for
insurance companies, HMO's and other third-party payors and have leveraged our
leadership position in key markets to build a strong provider base of eye care
professionals. We believe that we are well positioned to compete for all types
of eye care contracts because of our managed care expertise, sophisticated
information systems and operating history.
As of March 15, 2000, we administered eye care benefits for over 5 million
lives, delivered through networks of eye care professionals nationwide.
Approximately 2.7 million of these lives are in medical/surgical benefit plans,
which we believe, makes us one of the largest specialized managers of eye care
medical/surgical benefits in the country.
Under each managed care contract, we credential eye care professionals who
provide the eye care services specified under the contract to the third-party
payor's members. We also perform other services, including quality assurance and
utilization review, and are compensated on either a capitated or fee-for-service
basis. Most contracts have a term of three years and contain an automatic
renewal provision for additional one-year periods and grant either party the
right to terminate the contract upon 90-180 days notice.
Upon obtaining a managed care contract, we develop a network of eye care
professionals to provide the eye care services required under the contract.
Generally, we attempt to contract first with eye care professionals with whom we
have a business relationship. Additionally, we seek to enter into contracts with
independent eye care professionals. We undertake a thorough credential review
process on each prospective eye care professional, which includes obtaining a
copy of the state license and Drug Enforcement Agency number, verifying hospital
privileges, liability insurance and board certification, and reviewing work
history for each provider. Eye care professionals who are on one of our panels
are recredentialed every two years.
8
<PAGE>
All credentialed eye care professionals must meet the guidelines of the National
Committee for Quality Assurance a leading quality assurance authority.
We believe that our managed care services provide significant value to
third-party payors by delivering high quality, cost-effective managed eye care
to plan members and comprehensive administrative services to the third-party
payor. Some of the services provided include:
Plan Member Relations. Service representative staff are available to answer
questions on members' benefits, the status of claims and to resolve complaints
about the service rendered.
Simplified Pre-Authorization Process. Network eye care professionals, with
the assistance of our staff, obtain any required authorizations for the plan
members prior to performing an eye care procedure. We believe that this approach
simplifies the process for the plan member and thereby increases the plan
members' overall satisfaction with their eye care benefits. We utilize
proprietary systems to effectively administer eye health claims submitted,
including Internet-based electronic authorization and claim protocols, to lower
cost, reduce cycle time and improve the effectiveness of the administrative
process.
Quality Assurance Program. We solicit patient comments through monthly
patient satisfaction surveys sent to a sample of members of its managed care
customers. In addition, we track unsolicited comments that typically are in the
nature of telephone complaints. If a plan member is dissatisfied with the
service received, a service representative staff can quickly resolve routine
complaints relating to matters such as eyeglasses, contact lenses and the
quality of the eye examination. We believe that our issue-resolution structure
is unique to the industry and increases plan members' satisfaction with their
eye care benefits. In addition, we perform prospective-outcome studies and other
quality assessment studies on the care rendered by our network of providers.
Utilization Review Services. We periodically monitor every eye care
professional in our network to verify that the eye care professionals are
properly coding the medical services and treatment provided. Using proprietary
clinical criteria for eye care procedures that are based on the American Academy
of Ophthalmology's own guidelines, we work with eye care professionals regarding
the appropriate eye care treatment of members.
Credentialing. We provide credentialing services according to national
standards set forth by the National Committee of Quality Assurance by which
health plans are measured for compliance with quality assurance initiatives. The
credentialing process includes collection of data from applications prepared by
physicians, verification of licenses, insurance and education, and review of the
physician's file in the National Practitioner Data Bank.
Periodic Cost Reports. Periodic analytical reports on costs are prepared
for each of the company's health plans and the application of the funds of the
health plans for the benefit of the participants. We utilize our systems
technology to regularly and carefully monitor the economic and qualitative
performance of the networks, individual providers and health plan customers.
Licensing requirements. Our managed care division provides services to
customers in 8 states. Texas requires the company to be licensed, and our
subsidiary, AECC Total Vision of Texas, is licensed as a single-purpose HMO in
Texas. Prior to January 1, 2000, the managed care division also had a single
service license in North Carolina, but because of regulatory changes, this
license is no longer required to conduct the Company's business and has been
relinquished. We expect to seek a utilization review license in Georgia
9
<PAGE>
in the next 12 months for our Georgia managed care operations. We hold licenses
as a third-party administrator in Florida and a utilization review agent in
Rhode Island, but have not commenced business in either state at the present
time.
Other Integrated Services Division
The Other Integrated Services division provides eye care services and
products to consumers and also provides wholesale distribution of eye health
products. We provide these diversified eye care services to customers at our
integrated eye health centers and retail optical stores.
Integrated eye health centers. Our integrated eye health centers provide
comprehensive eye care services to consumers, including medical and surgical
treatment by ophthalmologists of eye diseases and disorders, and vision
measuring and non-surgical correction services for patients by optometrists. We
operate 17 centers in Connecticut and provide all management, billing, systems
and related services for the operation of these centers.
Retail optical stores. Our retail optical stores, both owned and
franchised, provide vision correction services through optometrists, and/or sell
eyeglasses and other optical products. The optical locations are either
free-standing or co-located with fully integrated eye health centers. The retail
optical stores provide all the customary optical goods and provide all the
billing, collection, and information systems to support the company's optical
operations. We own 46 retail optical locations as well as 7 optical dispensaries
in Connecticut and North Carolina. In Connecticut, we also have a complete
manufacturing facility in which lenses are manufactured, surfaced and ground to
specifications and supplied to all of our Connecticut locations.
For both the integrated eye health centers and retail optical stores,
we contract with professional corporations -- OptiCare, P.C., and Optometric Eye
Care Center, P.A. -- which employ ophthalmologists and optometrists to provide
surgical, medical and other professional services to consumers. We provide
management services to OptiCare P.C. under a renewable 5-year professional
services and support agreement, and to Optometric Eye Care Center, P.A. under a
renewable 15-year professional administrative services and support agreement.
In addition to our owned and operated locations, we have entered into
license agreements regarding our franchise of 32 retail optical locations in
North Carolina and South Carolina. Pursuant to these license agreements, we
permit these establishments to utilize our proprietary trademarks and trade
names, including "Optometric Eye Care Center," and offer specific marketing
programs and group purchasing services. These agreements are generally for five
year terms, however, we generally grant the licensee the right to terminate the
agreement upon 90 days notice. The licensees pay us a fee based on a percentage
of their gross revenue and have the option of requesting additional services
from us on a separate fee basis.
Optical Supplies. We purchase most of our eyeglasses, contact lenses and
other optical goods and devices through our Buying Group.
- -
Buying Group Program. We operate one of the largest U.S. wholesale optical
goods distribution or "buying group" programs, which supplies both our
integrated eye health centers and retail optical operations, as well as
independent ophthalmology and optometric practices with optical and ophthalmic
goods and medical supplies, i.e., eyeglass frames and lenses, contact lenses,
clinical equipment and other supplies. Over 4,000 eye care professionals
nationwide participate in our Buying Group. This purchasing program leverages
the purchasing strength of the large number of participating optometrists and
buys from a national panel of
10
<PAGE>
approximately 175 vendors. We enter into a non-exclusive account relationship
with the buying ophthalmologists and optometrists who place "bill to-ship to"
orders directly with our contracted vendors. The vendors are required
to furnish a discount to the purchasers, ship the product directly to
the practice and bill us at the predetermined price. We, in turn, bill the
participating practices and bear the credit risk. Earnings are achieved from the
buying group program based upon the spread between the merchandise cost and the
prices paid for the merchandise by the group members.
TRADEMARKS
We own the following U.S. trademark registrations: OPTICARE(Registered
Trademark), EYECARE FOR A LIFETIME(Registered Trademark), CONNECTICUT VISION
CORRECTION(Registered Trademark), and THE DIFFERENCE IS CLEAR(Registered
Trademark). Other trademarks for which applications for U.S. registration are
pending are: RBNI(Trademark), KEEPING YOU AHEAD OF THE CURVE(Trademark)and curve
design, DOCTOR'S EXPRESS(Trademark), DOCTORSXPRESS.COM(Trademark)and OPTICARE
LASER ADVANTAGE(Trademark). We also own the following domain names:
opticare.com; opticare.net; opticarenas.net; doctorsxpress.com; and
opticareonline.com. We consider these trademarks and domain names important to
our business. However, our business is not dependent on any individual trademark
or trade name.
COMPETITION
The market for eye care services is highly competitive in each segment of
our business. In the Laser Correction and Professional Services Division, we
compete with:
o Refractive laser surgery companies;
o Stand-alone laser surgery operators;
o Hospitals; and
o Physician practice management companies, among others.
While some of the competition in this segment is local and regional, we do
have national competitors. For laser correction, these include Lasersight, TLC
The Laser Center, Inc., Laser Vision Centers, Inc., ClearVision Laser Centers,
Ltd., LCA-Vision Inc. and Novamed. Laser correction companies primarily compete
on the basis of quality of service, reputation, price and convenience. With
respect to professional services, we generally compete with a range of services
specific operators providing services to eye health professionals, such as
marketing companies, systems and software vendors. We have identified few, if
any, integrated providers of eye health services other than physician practice
management companies, which, under a substantially different business model,
require substantial capital investment by the practice management company and
equity participation by ophthalmologists and optometrists.
Our Managed Care Services Division competes with several regional and
national eye health companies which provide services to managed care plans.
These include Vision Twenty-One and Vision Service Plan of America. We also
compete for managed care contracts with HMO's, PPO's and private insurers, many
of which have larger provider networks and greater financial and other
resources. Managed care organizations compete on the basis of administrative
strength, size, quality and geographic coverage of their provider networks,
marketing abilities, informational systems, the strategy of their managed care
contracts, operating efficiencies and price.
11
<PAGE>
For our Other Integrated Services Division, the most direct form of
competition is with independent ophthalmologists and optometrists, as well as
regional operators of retail optical locations. On a national basis, companies
that compete in this sector include retail optical operators, such as
LensCrafters, Cole National, Sight Resources, Eye Care Centers of America, and
Sterling Vision. Retail optical operators compete on price, service, product
availability and location. Buying group organizations compete on the basis of
price, size and purchasing power of their member buying group, the strength of
their credit, and the strength of their supplier agreements and relationships.
Several competitors in each of our divisions have greater capital or may
charge less for certain services. However, we believe the integrated nature of
our business model provides significant competitive advantages in the
marketplace.
FORMATION AND HISTORY
Our present form is the result of two mergers completed on August 13, 1999
(more fully described below) between (i) a subsidiary of the company and
OptiCare Eye Health Centers, Inc., a Connecticut corporation ("OptiCare Eye
Health Centers"), and (ii) another subsidiary of the company and PrimeVision
Health, Inc., a Delaware corporation ("PrimeVision Health"). As a result of the
mergers, OptiCare Eye Health Centers and PrimeVision Health are wholly owned
subsidiaries of the company. At the time of the mergers, PrimeVision Health and
OptiCare Eye Health Centers were each an integrated vision services company,
with PrimeVision Health headquartered in North Carolina, and OptiCare Eye Health
Centers headquartered in Connecticut.
The company was incorporated in Delaware in 1994 under the name "Saratoga
Resources, Inc." ("Saratoga"). At the time the company was formed, it succeeded
by merger to the assets of an oil exploration and production business.
Saratoga, while engaged in the oil business prior to 1999, experienced
several years of losses and in 1998 determined to spin off its oil assets and
seek a merger partner or other transaction to take advantage of Saratoga's
status as a publicly held company. On April 12, 1999, Saratoga entered into a
merger agreement with PrimeVision Health and OptiCare Eye Health Centers.
Pursuant to the merger agreement, Saratoga spun off or otherwise disposed of its
assets other than a modest amount of cash and two "shell" subsidiaries, and
PrimeVision Health and OptiCare Eye Health Centers merged with the shell
subsidiaries. The merger agreement closed on August 13, 1999, and, pursuant to
the merger agreement, Saratoga changed its name to "OptiCare Health Systems,
Inc.," which is now the name of our company.
At the closing of the merger agreement, the board of directors and
management of Saratoga resigned and, in accordance with the terms of the merger
agreement, were replaced by persons selected by PrimeVision Health and OptiCare
Eye Health Centers. Likewise, the capital structure of the company was altered
by amendments to the certificate of incorporation and by the filing of a
certificate of designation establishing a class of preferred stock designated as
the Series A Convertible Preferred Stock.
GOVERNMENT REGULATION
The federal and state governments extensively regulate the health care
industry. Our business is subject to numerous federal and state laws and
regulations, including the following:
12
<PAGE>
Excimer Laser Regulation. Medical devices, including the excimer lasers
used in our eye surgery and laser centers, are subject to regulation by the U.S.
Food and Drug Administration, referred to as the FDA. Medical devices may not be
marketed for commercial sale in the United States until the FDA grants
pre-market approval for the device.
The FDA has not specifically approved the use of LASIK or the use of
excimer lasers to treat both eyes on the same day, commonly referred to as
bilateral treatment. The FDA considers these uses to be a practice of medicine
decision. Ophthalmologists, including our affiliated ophthalmologists, often
perform LASIK and bilateral treatment in an exercise of professional judgment in
connection with the practice of medicine.
Failure to comply with applicable FDA requirements could subject the
company, our affiliated providers or laser manufacturers to enforcement action,
product seizures, recalls, withdrawal of approvals and civil and criminal
penalties. Further, failure to comply with regulatory requirements, or any
adverse regulatory action, including a reversal of the FDA's current position
that the "off-label," or non-FDA-approved, use of excimer lasers by physicians
outside the FDA approved guidelines is a practice of medicine decision, which
the FDA is not authorized to regulate, could result in a limitation on or
prohibition of the company's use of excimer lasers.
Regulation of Laser Vision Marketing. The marketing and promotion of laser
correction and other vision correction surgery procedures in the United States
are subject to regulation by the FDA and the Federal Trade Commission, referred
to as the FTC. The FDA and FTC have released a joint communique on the
requirements for marketing these procedures in compliance with the laws
administered by both agencies. The FTC staff also issued more detailed staff
guidance on the marketing and promotion of these procedures and has been
monitoring marketing activities in this area through a non-public inquiry to
identify areas that may require further FTC attention. The FDA has traditionally
taken the position that the promotion and advertising of lasers by manufacturers
and physicians should be limited to the uses approved by the FDA. Although the
FDA does not prevent surgeons from using excimer lasers off-label, the FDA
reserves the right to regulate advertising and promotion of off-label uses.
Insurance Licensure. Most states impose strict licensure requirements on
health insurance companies, HMO's, and other companies that engage in the
business of insurance or pre-paid health care. In most states, these laws do not
apply to discounted fee-for-service arrangements or networks that are paid on a
capitated basis, i.e. based on the number of covered persons the network is
required to serve without regard to the actual rendering of eye care service to
patients, provided that the association with which the network provider has
contracted is a licensed health insurer or HMO. There are exceptions to these
rules in some states. For example, certain states require a license for a
capitated arrangement with any party unless the risk-bearing association is a
professional corporation that employs the eye care providers. If we are required
to become licensed under these laws, the licensure process can be lengthy and
time consuming and, unless the regulatory authority permits us to continue to
operate while the licensure process is progressing, we could suffer losses of
revenue that would result in material adverse changes in its business while the
licensing process is pending. In addition, many of the licensing requirements
mandate strict financial and other requirements we may not immediately be able
to meet. Once licensed, we would be subject to continuing oversight by and
reporting to the licensing authority.
Regulation of our HMO Subsidiary. We hold one single service HMO license in
Texas. Prior to January 1, 2000, we also held a single service HMO license in
North Carolina. However, because of
13
<PAGE>
regulatory changes, this license is no longer required to conduct the company's
business and has been relinquished. Texas requires the filing of quarterly and
annual reports as well as periodic on-site audits.
The Florida, North Carolina and Texas, managed care businesses are highly
regulated. Such regulation can include, but is not limited to, caps on
permissible premiums charged to customers; mandated benefits; and rules
governing relationships with, and payments to, network providers. Each of these
states also require pre-approval from their respective Departments of Insurance
prior to allowing a significant change of ownership control to take place.
In Texas, a single service HMO must maintain a reserve of $500,000, net of
accrued unpaid liabilities. However, if such a reserve is currently unavailable,
the HMO must achieve and maintain a current reserve of $200,000; this reserve
must increase to $275,000 by December 31, 1999; $350,000 by December 31, 2000;
$425,000 by December 31, 2001; and $500,000 by December 31, 2002.
Texas Administrative Oversight Order. Our wholly owned Texas HMO, AECC
Total Vision Health Plan of Texas, Inc., is required by the terms of an
administrative oversight order dated August 18, 1999, from the Texas Insurance
Department to maintain a minimum net worth of $1,400,000. The Texas HMO is also
prohibited from paying dividends or making any other payments to us without the
prior written approval of the Texas Insurance Department. The Texas HMO
subsidiary is therefore restricted in its ability to apply its earnings (if any)
to the payment of dividends on our common stock, the reduction of bank debt or
any other corporate purpose, other than operation of the Texas HMO. We do not
consider this requirement burdensome under present circumstances, but we are
nevertheless restricted in the use of its capital. We have a cost allocation
agreement with our Texas HMO subsidiary, approved by the Texas Insurance
Department, which permits this subsidiary to reimburse us, the parent company,
for shared administrative costs. The cost allocation agreement may be amended
only with approval of the Texas Insurance Department.
Third Party Administration Licensing. Some states require licensing for
companies providing administrative services in connection with managed care
business. We hold third-party administrator's licenses in Florida and Rhode
Island. We intend to seek licenses in the states where they are available for
eye care networks. However, we may not be able to meet the licensing
requirements in all states, and this may have an adverse effect on our business
and operating results or inhibit its growth.
Physician Incentive Plans. Medicare regulations impose certain disclosure
requirements on managed care networks that compensate providers in a manner that
is related to the volume of services provided to Medicare patients (other than
services personally provided by the provider). If incentive payments exceed 25%
of the provider's potential payments, the network is also required to show that
the providers have certain "stop loss" financial protections and to conduct
certain Medicare enrollee surveys.
"Any Willing Provider" Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
qualified and licensed provider who is willing to abide by the terms of the
network's contracts. These laws may also prohibit termination of providers
without cause. These laws limit our ability to develop effective managed care
networks in such states.
Corporate Practice of Optometry and Ophthalmology. The laws of many states
prohibit corporations that are not owned entirely by eye care professionals
from:
o employing eye care professionals;
14
<PAGE>
o receiving for their own account reimbursements from third party payors
for health care services rendered by licensed professionals;
o controlling clinical decision-making; or
o engaging in other activities that constitute the practice of
optometry or ophthalmology.
To comply with these requirements, we:
o contract with professional associations (which are owned by one or
more licensed optometrists or ophthalmologists), which in turn employ
or contract with licensed optometrists or ophthalmologists to provide
professional services to patients;
o perform only non-professional services;
o do not represent to the public or customers that it provides
professional eye care services; and
o do not exercise influence or control over the practices of the eye
care practitioners employed by the professional associations.
Our agreements with eye care providers specifically provide that all
decisions required by law to be made by licensed ophthalmologists or
optometrists shall be made only by such licensed persons, and that we shall not
engage in any services or activities which would constitute the practice of
ophthalmology or optometry. If health care regulations and their interpretations
change in the future, we may have to revise the terms of such agreements to
comply with regulatory changes. See "Certain Relationships and Related
Transactions -- OptiCare P.C. and -- Optometric Eye Care Centers, Inc."
State Fee-Splitting and Anti-kickback Law. Most states have laws
prohibiting the paying or receiving of any remuneration, direct or indirect,
that is intended to induce referrals for health care products or services. Many
states also prohibit "fee-splitting" by health care professionals with any party
except other health care professionals in the same professional corporation or
practice association. In most cases, these laws apply to the paying of a fee to
another person for referring a patient or otherwise generating business, and do
not prohibit payment of reasonable compensation for facilities and services
other than the generation of business, even if the payment is based on a
percentage of the revenues of the professional practice. However, in some
states, "fee-splitting" has been interpreted to include payments by health
professionals of a portion of fees in return for certain services.
The North Carolina Medical Board stated in an Official Position Statement,
which was adopted in 1993 and amended in 1996, that sharing profits between a
non-physician and physician partner on a percentage basis is fee splitting and
is grounds for disciplinary action. In the past year, this issue has been raised
in several lawsuits in the state. In each of these cases, the court was asked to
find that the profit sharing arrangement between a physician or physician group
and management company is unethical and void as against public policy. To date,
no court in North Carolina has ruled on this issue. There is a risk that a court
could find that our arrangements with physicians are unethical and void as
against public policy or that the Medical Board could determine that the
Company's arrangements with physicians in the state constitute unethical
fee-splitting and that these physicians are subject to disciplinary action. This
risk could also extend to arrangements with optometrists since the North
Carolina Optometry Board has informally indicated that it takes a similar view
on fee-splitting.
15
<PAGE>
North Carolina law also prohibits health care providers from paying any
type of financial compensation to any person, firm or corporation for
recommending or securing the provider's employment by a patient, or as a reward
for having made a recommendation resulting in the provider's employment by a
patient.
Federal Fee-Splitting and Anti-kickback Law. Federal law prohibits the
offer, payment, solicitation or receipt of any form of remuneration in return
for the referral of patients covered by federally funded health care programs
such as Medicare and Medicaid, or in return for purchasing, leasing, ordering or
arranging for the purchase, lease or order of any product or service that is
covered by a federal program.
On April 15, 1998 the Office of Inspector General of the U.S. Department of
Health and Human Services (the "OIG") issued Advisory Opinion 98-4, which raised
questions about whether a percentage of revenue management fee arrangement could
be viewed as violating the federal anti-kickback law if the manager is involved
in helping generate revenues derived from Medicare and Medicaid programs. Under
the arrangement reviewed by the OIG, the manager's duties included management
and marketing services, negotiation and oversight of health care contracts with
various payors, including Federal healthcare programs, and setting up provider
networks that included physicians. Payments to the management company included a
"fair market value payment" for operating services provided by the manager, a
payment based on a percentage of the cost of capital assets, and an additional
20% of net revenues of the practice for management services. The OIG noted that
since the manager was paid a percentage of net revenue, including revenue from
business derived from managed care contracts arranged by the manager, that a
potential technical violation of the anti-kickback statute existed. The OIG
further noted that since the manager would presumably receive some compensation
for management efforts in connection with the development and operation of
specialist networks, any evaluation by the OIG would require information about
the relevant financial relationships. The OIG summarized that while the
management arrangement "may" violate the anti-kickback statute, a definitive
conclusion would require a determination of the parties' intent, which is beyond
the scope of the advisory opinion process.
Our services agreements are different from the arrangements reviewed by the
OIG in its advisory opinion. Therefore, we believe that the opinion is
inapplicable to our relationships with our eye care professionals. As a result,
there are no present plans to change the terms of these relationships, but we
will continue to monitor any clarifications or determinations in this area. If
the forms of our services agreements are ever determined to be in violation of
the federal anti-kickback statute, it is likely that there would be a material
adverse impact on our business, financial condition and results of operation.
Advertising Restrictions. Many states, including Connecticut and North
Carolina, prohibit licensed eye care professionals from using advertising which
includes any name other than their own, or from advertising in any manner that
is likely to lead a person to believe that a non-licensed professional is
engaged in the delivery of eye care services. Certain of our forms of services
agreements provide that all advertising shall conform to these requirements, but
there can be no assurance that the interpretation of the applicable laws or our
advertising will not inhibit us or result in legal violations that could have a
material adverse effect on us.
The laws described above have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation. They are enforced by
regulatory agencies that are vested with broad discretion in interpreting their
meaning. Our agreements and activities have not been examined by federal or
state
16
<PAGE>
authorities under these laws and regulations. There can be no assurance that
review of our business arrangements will not result in determinations that
adversely affect our operations or that certain material agreements between us
and eye care providers or third-party payors will not be held invalid and
unenforceable. In addition, these laws and their interpretation vary from state
to state. The regulatory framework of certain jurisdictions may limit our
expansion into, or ability to continue operations within, such jurisdictions if
we are unable to modify its operational structure to conform with such
regulatory framework. Any limitation on our ability to continue operating in the
manner in which it has operated in the past could have an adverse effect on our
business, financial condition and results of operations.
CREDIT FACILITY
On August 13, 1999, we and certain of our subsidiaries entered into a loan
and security agreement and certain other agreements relating to the loan
agreement with a group of lenders represented by Bank Austria Creditanstalt
Corporate Finance, Inc. The outstanding balance under this credit facility as of
March 15, 2000, is approximately $29.6 million.
Under the terms of the credit facility, the lenders have made available a
maximum aggregate principal amount at any time outstanding of $34.2 million,
which includes a term loan facility in the aggregate principal amount of $21.5
million, and a revolving credit facility in the maximum aggregate principal
amount at any time outstanding of $12.7 million, including, a letter-of-credit
sub-facility of up to $1.5 million. We use our credit facility to supplement
working capital.
We may borrow and repay under the revolving credit facility until June 1,
2004, subject to the terms and conditions of the credit facility. The term loan
facility is repayable in fifteen quarterly principal installments, with the
first fourteen installments repayable in accordance with the amortization
schedule set forth in the credit facility, and the final payment of all
principal amounts outstanding, being due and payable on June 1, 2004. The credit
facility also requires us to make certain mandatory prepayments, including upon
the offering of common stock, and allows us to make optional prepayments. The
credit facility terminates, and all amounts outstanding under the credit
facility are due and payable, on June 1, 2004.
The interest rate under the credit facility equals the base rate or the
eurodollar rate (each, as defined in the credit facility), as we may from time
to time elect. The base rate is generally 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
percentage point. The eurodollar rate generally equals the quotient of 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.
Our subsidiaries have guaranteed the payments and our other obligations
under the credit facility, and we and certain of our subsidiaries have granted a
security interest in substantially all assets, in favor of our lenders. We have
pledged the capital stock of certain of our subsidiaries to the lenders.
The credit facility contains certain restrictions on the conduct of our
business, including restrictions on incurring debt, declaring or paying any cash
dividends or any other payment or distribution on our capital stock, and
creating liens on our assets. We are required to maintain certain financial
covenants, including, a minimum fixed charge coverage ratio, a leverage ratio, a
senior leverage ratio, and
17
<PAGE>
an interest coverage ratio. We are also restricted from incurring capital
expenditures in excess of a specified amount and are required to achieve minimum
cash flows.
The occurrence of certain events or conditions described in the credit
facility constitute an "event of default," including:
o failure to make payment of principal or interest when due;
o failure to observe or perform certain affirmative covenants and other
covenants; or
o the occurrence of a vacancy in the offices of the chief executive or
chief financial officer which is not filled by a person reasonably
acceptable to the lenders.
For further information regarding our credit facility, see
"Management's Discussions and Analyses of Financial Conditions and Results of
Operations - Liquidity."
EMPLOYEES
We and our affiliates have approximately 925 employees, including 110
executive or managerial personnel, 207 licensed ophthalmologists, optometrists,
and opticians and 148 ophthalmologist assistants. These amounts include an
aggregate of 259 part-time personnel, i.e., working fewer than 30 hours per
week. We believe that our relations with our employees are good. We are not a
party to any collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTIES
We have executive offices in Waterbury, Connecticut and Rocky Mount, North
Carolina. The Waterbury facility, which contains corporate offices, Managed Care
offices and an integrated eye health center, is leased under four separate
leases with remaining terms ranging from five to 13 years. Each of these leases
also has renewal options ranging from five to 20 years in total. The combined
base annual rent is $865,817 for a total of 47,200 square feet.
The Rocky Mount facilities, which contain executive offices, HMO offices
and an operations center, are adjacent facilities leased under four separate
leases with remaining terms of three to five years. The combined base rent for
these four facilities is $239,000 for a total of 33,900 square feet.
Each of the foregoing offices is leased from a party that is affiliated or
associated with one or more of our directors or executive officers. See
"Certain Relationships and Related Transactions."
We lease 32 additional offices in the states of Connecticut, North
Carolina, Florida and Texas, principally for its eye health services and retail
optical operations. These leases have remaining terms of between one and 11
years. Many of these leases are also subject to renewal options. We believe our
properties are adequate and suitable for its business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS
18
<PAGE>
OptiCare Eye Health Centers Physicians Action and Countersuits. Seven
physicians employed by OptiCare, P.C. commenced an action in January 1999 in the
Connecticut Superior Court complaining of inducements that led them to affiliate
with OptiCare Eye Health Centers. Shortly after the commencement of the action,
three of the plaintiffs withdrew from the lawsuit. The remaining four plaintiffs
seek damages for individual harm they claim to have suffered. One plaintiff also
purports to sue derivatively on behalf of OptiCare Health Eye Centers for harm
suffered by the shareholders. The defendants deny the factual and legal validity
of the claims asserted and have moved to dismiss the complaint. The derivative
portion of the complaint was dismissed on June 14, 1999. Dr Yimoyines, our
Chairman, Chief Executive Officer and President, has been named as a defendant
in this action.
OptiCare Eye Health Centers and OptiCare P.C. instituted actions in January
and February, 1999, in the Connecticut Superior court against two physicians for
unfair trade practices, tortious interference and abuse of process based on
defendants' course of conduct that plaintiffs complain is unlawfully designed to
force plaintiffs to modify the defendants' employment contracts. Defendants have
moved to strike the complaint. OptiCare Eye Health Centers and OptiCare, P.C.
are opposing the motion to strike, and if successful in their opposition intend
to vigorously pursue their claims. We have also brought a counterclaim against
three of the physicians for anticipatory breach of contract. The foregoing
actions have been consolidated in Connecticut Superior Court. These actions are
in the early stages of discovery. We believe that we will prevail in these
actions. However, if the physicians prevail in these actions, our business,
financial condition and results of operations could be materially adversely
affected.
Missouri Action, Counterclaim and Related Put Option. PrimeVision Health
commenced an action (the "Missouri Action") in United States District Court for
the Eastern District of Missouri, in August 1998, seeking damages from an
ophthalmologist (the "Missouri Seller") who sold his ophthalmology practice to
PrimeVision Health. PrimeVision Health has alleged that the Missouri Seller
falsely and fraudulently inflated the value of the corporation he sold to
PrimeVision Health, in the amount of approximately $2 million. The Missouri
Seller has counterclaimed against PrimeVision Health, for, among other things,
enforcement of a put option, damages for allegedly malicious prosecution and a
declaration that his administrative services agreement with PrimeVision Health
is terminated and of no further force or effect. The litigation is in its
earliest stages.
As part of the purchase transaction, PrimeVision Health issued a put option
by which the Missouri Seller, at his election, may require PrimeVision Health to
purchase the balance of his ophthalmology practice, based on substantially the
same valuation which PrimeVision Health is challenging in court. The exercise
price that would be payable by PrimeVision Health under the put option is
approximately $4 million. In January 1999, the Missouri Seller exercised the put
option. PrimeVision Health has asserted to the Missouri Seller that PrimeVision
Health is not obligated to honor the put for the same reasons that PrimeVision
Health is seeking damages in the Missouri Action -- that the value of the
corporation sold by the Missouri Seller to PrimeVision Health was falsely
inflated. As noted above, the Missouri Seller has counterclaimed in the Missouri
Action to enforce the put. We believe that we will prevail in the pending
Missouri Action and in any attempt to enforce the put. If the Missouri Seller
were to prevail in this action, our business, financial condition and results of
operations could be materially adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of 1999.
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
19
<PAGE>
The following information about the market prices of our common stock
should be read in light of the material and substantial qualitative changes in
our business that became effective upon the closing of the mergers of Saratoga
with PrimeVision Health and OptiCare Eye Health Centers, on August 13, 1999.
Among other changes (i) Saratoga effected a 0.06493-for-1 reverse stock split on
August 13, 1999, (ii) Saratoga spun off to its stockholders of record prior to
the mergers, the capital stock of certain subisidiaries, and (iii) the issuance
of approximately 8.7 million of post-reverse-stock-split common stock to
effectuate the mergers. The prices reported below for periods ending on or
before August 13, 1999 have been adjusted to reflect the reverse stock split.
Commencing August 16, 1999, our common stock has been listed on the
American Stock Exchange and is traded under the symbol "OPT" (or, from August 16
through September 20, 1999 under the symbol "OPTWI"). Prior to August 16, 1999,
our common stock was not listed on any stock exchange, but quotations from time
to time were reported by the NASD on the OTC bulletin Board under the symbol
"SRIK."
The high and low prices for the period from August 16, 1999 through
December 31, 1999 are based on trades effected on the American Stock Exchange.
The range of high and low bid information for the shares of our common stock for
the last two complete fiscal years, and for January 1 through August 13, 1999,
as set forth below, was reported by the National Quotation Bureau. Such
quotations represent prices between dealers, do not include retail markup,
markdown or commission, and may not represent actual transactions.
1999 HIGH LOW
---- ---- ---
4th Quarter $5.00 $2.75
3rd Quarter*:
August 16 - September 30* 12.50 5.00
July 1 - August 13** 0.106 0.037
2nd Quarter 0.067 0.004
1st Quarter 0.004 0.004
1998
----
4th Quarter 0.016 0.004
3rd Quarter 0.016 0.016
2nd Quarter 0.073 0.012
1st Quarter 0.012 0.012
* The range of prices and quotations in the 3rd Quarter of 1999 is reported
separately for periods ending on or before August 13, 1999, which is the
last trading day before the reverse stock split and the mergers of OptiCare
health Centers and Prime Vision Health became effective.
** Quotations for all periods ending on or before August 13, 1999, have been
adjusted to give effect to a 1-for-.06493 reverse stock split that became
effective at the close of business on August 13, 1999.
20
<PAGE>
On March 15, 2000, the last reported sale price of our common stock on the
American Stock Exchange was $4.00 per share. As of March 15, 2000, there were
approximately 183 stockholders of record of our common stock.
We have never paid any cash dividends on our common stock and do not intend
to pay any cash dividends for the foreseeable future. It is our present policy
that any retained earnings will be used for repayment of indebtedness, working
capital, capital expenditures and general corporate purposes. Furthermore, we
are precluded from declaring or paying any cash dividends, or making a
distribution to our stockholders under the covenants of our revolving credit and
term loan agreements, until the termination of such agreement and the repayment
of all amounts due to such lender.
Recent Sales of Unregistered Securities
Described below is information regarding all of our equity securities that
we have issued during 1999 that were not registered under the Securities Act.
On or about August 13, 1999, in connection with the closing of the mergers,
we granted options to purchase 631,367 shares of our common stock under the
Performance Stock Program, at an average exercise price of $5.44 per share, in
replacement of options previously granted by each of Prime Vision Health, Inc.
and OptiCare Eye Health Centers, Inc.
On or about August 13, 1999, we granted options to purchase 721,250
shares of our common stock under the Performance Stock Program, at an average
exercise price of $5.85 per share.
On August 13, 1999, in connection with entering into a new credit facility,
we 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 to purchase, at an exercise price of $5.85 per warrant, 100,000 shares
of (A) our common stock or (B) Series A Convertible Preferred Stock, or (C) a
combination of our common stock and Series A Convertible Preferred Stock
aggregating 100,000 shares.
On August 13, 1999, in connection with the mergers, we 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 Prime Vision Health, Inc. See "Certain
Relationships and Related Transactions - Arrangements with Marlin Capital, L.P."
On October 1, 1999, we entered into a stock purchase agreement with Stephen
Cohen, Robert Airola, Gerald Mandel and Reginald Westbrook. Pursuant to the
agreement, we 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 our 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. We have reason to believe that (i) all of the
foregoing purchasers were familiar with or had access to information concerning
our operations and financial condition, (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
21
<PAGE>
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 our 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 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data has been
derived from audited historical financial statements and should be read in
conjunction with the consolidated financial statements of the company and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere herein. The company in its
present form is the result of mergers completed on August 13, 1999 among
Saratoga, PrimeVision Health and OptiCare Eye Health Centers. For accounting
purposes, PrimeVision Health was treated as the accounting acquirer and,
therefore the predecessor business for historical financial statement reporting
purposes.
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
<CAPTION>
-------------------------------------------------------------------
1999 (1) 1998 1997 1996 1995
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues $94,633 $64,612 $58,346 $52,157 $38,523
Income (loss) from continuing operations 351 (3,239) (2,034) (767) (391)
Weighted average shares outstanding (2) 4,776 2,256 1,856 693 -
Income (loss) from continuing operations
per share (3) $ (0.05) $ (2.54) $ (1.10) $ (1.11) $ -
</TABLE>
(1) The Company acquired OptiCare Eye Health Centers, Inc. on August 13, 1999
and Cohen Systems, Inc. on October 1, 1999, which were accounted for as
purchases. Accordingly, the results of operations of OptiCare Eye Health
Centers and Cohen Systems, Inc. are included in the historical results of
operations since September 1, 1999 and October 1, 1999, respectively, the
deemed effective dates of the acquisitions for accounting purposes.
(2) The weighted average common shares outstanding have been adjusted to
reflect the conversion associated with the reverse merger with Saratoga.
(3) Income (loss) from continuing operations per share for 1999 and 1998 are
calculated after giving effect to preferred stock dividends.
<TABLE>
AS OF DECEMBER 31,
<CAPTION>
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net assets of discontinued operations - $5,582 $69,473 $13,845 -
Total current assets $ 21,345 20,237 18,274 20,306 $5,315
Total assets 66,740 26,556 86,397 26,296 11,873
Total current liabilities 20,654 51,198 8,289 4,138 2,941
Total debt (including current portion) 43,148 39,976 46,536 22,273 6,895
Mandatorily redeemable preferred stock - 9,200 - - 40
Total stockholders' equity (deficit) 5,274 (34,690) 4,546 4,683 23,036
</TABLE>
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto of OptiCare Health Systems, Inc., which
are included elsewhere herein. See the Index to Financial Statements, beginning
at page F-1.
Overview. OptiCare Health Systems, Inc. is an integrated eye care services
company that delivers a range of services and systems for eye health
professionals and consumers, including laser correction, managed care and
professional eye care services. On August 13, 1999 Saratoga Resources, Inc.
("Saratoga"), a Delaware corporation, PrimeVision Health, Inc. and OptiCare Eye
Health Centers, Inc. merged (the "Mergers") pursuant to the terms of an
Agreement and Plan of Merger dated as of April 12, 1999. In this transaction
PrimeVision Health merged with Saratoga through a reverse acquisition by
PrimeVision Health of Saratoga at book value with no adjustments reflected to
historical values. Immediately following the PrimeVision Health merger, OptiCare
Eye Health Centers 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 connection with the merger, our shareholders approved an amendment to
the Articles of Incorporation changing, among other things, the company's name
to OptiCare Health Systems, Inc., effective August 13, 1999.
For accounting purposes, PrimeVision Health was the accounting acquirer and
the surviving accounting entity. Accordingly, the operating results of OptiCare
Eye Health Centers 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.
Financial results for periods prior to September 1, 1999 are based solely upon
the results reported by Prime and its subsidiaries. The excess of the aggregate
purchase price including merger costs of $29.1 million over the estimated fair
value of the net assets acquired was approximately $20.7 million. Of this excess
$18.5 million has been recorded as goodwill and is being amortized on a
straight-line basis over 25 years and $2.2 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.
On October 1, 1999, we purchased Cohen Systems, Inc. (the "Cohen
Acquisition"), a software systems provider specializing in point of sale and
internet-based solutions for optical retail and optical manufacturing
laboratories. The total purchase price of approximately $1.6 million was
comprised of approximately $0.8 million in cash and notes payable and 110,000
shares of common stock (having a value of approximately $0.8 million). The Cohen
Acquisition was accounted for under the purchase method of accounting, whereby
the purchase cost has been allocated to the fair value of assets acquired and
liabilities assumed with the excess identified as goodwill. Fair values were
based on valuations and other studies. The goodwill resulting from this
transaction was approximately $1.2 million and is being amortized on a
straight-line basis over 25 years. The results of operations of Cohen Systems,
Inc. are included in our consolidated financial statements from the purchase
date.
23
<PAGE>
In the fourth quarter of 1999, our board of directors approved a new
corporate strategy to focus on the growth of laser correction in the eye care
industry. In connection with that strategy, we reorganized our operations from
two operating segments into three segments : (1) laser correction and
professional services, (2) managed care services and (2) other integrated
services. The laser correction and professional services segment includes a
range of services rendered to licensed practitioners of ophthalmology and
optometry, including the development and marketing of laser correction centers,
the sale of eye health systems and software, and the operation of ambulatory
surgery centers. The managed care segment provides a range of administrative,
network management and related services to health maintenance organizations and
other health care entities. The integrated services and product sales segment
operates integrated eye health centers in Connecticut and owns and operates
retail optical stores in Connecticut and North Carolina. This segment also
includes a buying group program for optical products.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Laser correction and professional services revenue. Laser correction and
professional services revenue was $4.1 million for the year ended December 31,
1999. This revenue was comprised of $1.5 million from laser vision correction
and ambulatory surgery services, $1.6 million from HSO service agreements and
$1.0 million of revenue from Cohen Systems, Inc. for the three months ended
December 31, 1999. There was no such revenue from these operations in 1998 or
1997.
Managed care services revenue. Managed care revenue increased to $24.4
million for the year ended December 31, 1999 from $14.9 million for the year
ended December 31, 1998, an increase of $9.5 million or 63.8%. Of this increase,
$3.7 million represents managed care revenue of OptiCare Eye Health Centers for
the months of September through December 1999. The remaining increase is due to
new managed care contracts and growth in existing member lives.
Other integrated services revenue. Integrated services and product sales
revenue increased to $66.1 million for the year ended December 31, 1999 from
$49.7 million for the year ended December 31, 1998, an increase of $16.4 million
or 33.0%. Of this increase $10.4 million represents optometry and ophthalmology
revenue of OptiCare Eye Health Centers for the months of September through
December 1999. The increase is also a result of growth in revenue from the
buying group that increased from $30.0 million for the year ended December 31,
1998 to $33.4 million for the year ended December 31, 1999, an increase of $3.4
million or 11.3%. The remaining increase is attributable to growth in the other
optometry and retail areas.
Cost of product sales. Cost of product sales increased to $41.2 million for
the year ended December 31, 1999 from $35.2 million for the year ended December
31, 1998, an increase of $6.0 million or 17.1%. Of this increase approximately
$3.3 million represents an increase in costs of product sales related to the
buying group program, representing an increase of approximately 11.9% from 1998
and is consistent with the related increase in buying group revenue. In
addition, approximately $1.8 million of this increase relates to cost of product
sales associated with the optometry, ophthalmology and surgical centers
operations of OptiCare Eye Health Centers for the months of September through
December 1999. The remaining increase is consistent with the increases in
revenues in the other optometry and software sales areas.
Medical claims expense. Medical claims expense increased to $19.5 million
for the year ended
24
<PAGE>
December 31, 1999 from $11.0 million for the year ended December 31, 1998, an
increase of $8.5 million or 77.3%. 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 services revenue. The remaining increase of
approximately $2.7 million represents medical claims expenses of OptiCare Eye
Health Centers for the four months ended December 31, 1999.
Salaries wages & benefits. Salaries, wages and benefits increased to $20.1
million for the year ended December 31, 1999 from $9.3 million for the year
ended December 31, 1998, an increase of $10.8 million or 116.1%. Of this
increase $8.0 million represents compensation expenses of OptiCare Eye Health
Centers for the months of September through December 1999. The remaining
increase primarily represents increased employee costs associated with servicing
increased managed care contracts.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $7.9 million for the year ended December
31, 1999 from $6.0 million for the year ended December 31, 1998, an increase of
$1.9 million or 31.7%. This increase is primarily attributed to the general and
administrative expenses of OptiCare Eye Health Centers for the period September
1 through December 31, 1999.
Interest Expense. Interest expense decreased to $3.2 million for the year
ended December 31, 1999 from $4.5 million for the year ended December 31, 1998,
a decrease of $1.3 million or 28.9%. Interest expense primarily relates to our
bank indebtedness and notes payable to sellers in connection with acquisition
activities. The decrease in interest expense is primarily due to the reduction
in 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 disposal of PrimeVision Health's ophthalmology division in December 1998.
Income (loss) from continuing operations before income taxes. Income from
continuing operations before income taxes increased to $0.6 million for the year
ended December 31, 1999 from a loss of $(2.8) million for the year ended
December 31, 1998, an increase of $3.4 million or 121.4%. This increase was
primarily attributed to revenue growth and the reduction of interest expense as
described above.
Income tax expense. The effective tax rate for the year ended December 31,
1999 of 45.2% represents the tax expense on the book income for the year. The
1999 rate differs from the statutory rate primarily due to state income taxes
and non-deductible goodwill amortization.
Loss from discontinued operations, net of tax. Discontinued operations
represent the loss from Prime's ophthalmology division. Loss from discontinued
operations for the year ended December 31, 1998 was $34.9 million. Discontinued
operations for the year ended December 31, 1999 includes an additional loss on
disposal of $2.3 million, which represents our revised estimate of loss.
Net Income (loss). The company had a net loss of $2.0 million for the year
ended December 31, 1999 compared to a net loss of $38.1 million for the year
ended December 31, 1998, a decrease of $36.1 million. This change was the result
of an increase in net income from continuing operations of $3.6 million and a
decrease in the loss from discontinued operations of $32.5 million.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
25
<PAGE>
For the year ended December 31, 1998, the company recorded a net loss of
approximately $38.1 million, was highly leveraged and was not in compliance with
its bank debt covenants. Accordingly, all bank debt was classified in current
liabilities at December 31, 1998. Management determined that the ophthalmology
segment was the main contributing factor to the company's liquidity problems,
due to lower than anticipated cash flows from the ophthalmology practices, as
evidenced by the historical operating losses experienced by the ophthalmology
segment.
On December 15, 1998, in recognition of the significant losses and the fact
that the physician practice management business model as operated by the company
was largely unsuccessful, the company determined that the business should be
disposed of and that a combination should be sought with a related business with
a stronger infrastructure. Subsequent to such decision by the board, the merger
among Saratoga, PrimeVision Health and OptiCare Eye Health Centers was approved.
Other integrated services net revenue. Other integrated services revenue
decreased to $49.7 million for the year ended December 31, 1998 from $50.9
million for the year ended December 21, 1997, a decrease of $1.2 million or
2.4%. This change is primarily due a decrease in the revenues in the buying
group and is slightly offset by a small increase in the optometry division.
Managed care services revenue. Managed care net revenue increased to $14.9
million for the year ended December 31, 1998 from $7.4 million for the year
ended December 31, 1997, an increase of $7.5 million or 101.3%. This increase is
primarily attributable to additional managed care contracts in 1998.
Cost of product sales. Cost of product sales decreased to $35.2 million for
the year ended December 31, 1998 from $37.0 million for the year ended December
31, 1997, a decrease of $1.8 million or 4.9%. This decrease is consistent with
the related decrease in other integrated services revenue.
Medical claims expense. Medical claims expense increased to $11.0 million
for the year ended December 31, 1998 from $5.0 million for the year ended
December 31, 1997, a increase of $6.0 million or 120%. This increase is
consistent with the increase in managed care revenues.
Salaries, wages & benefits. Salaries, wages and benefits were relatively
unchanged at $9.3 million for the year ended December 31, 1998 compared to $ 9.1
million for the year ended December 31, 1997, an increase of $0.2 million or
2.2%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $6.0 million for the year ended December
31, 1998 from $5.2 million for the year ended December 31, 1997 an increase of
$0.8 million or 15.4%. The increase in 1998 was primarily due to additional
costs to support revenue growth in the managed care division.
Interest expense. Interest expense increased to $4.5 million for the year
ended December 31, 1998 from $3.9 million for the year ended December 31, 1997,
an increase of $0.6 million or 15.4%. This increase is due to increased
borrowings on PrimeVision Health's bank credit facility resulting from
acquisitions and lower than expected cash generation in the discontinued
ophthalmology business.
Loss from continuing operations before income taxes. Loss from continuing
operations before income taxes decreased to $2.8 million for the year ended
December 31, 1998 from $3.1 million for the year ended December 31, 1997, a
decrease of $0.3 million or 9.7%.
26
<PAGE>
Income taxes. The effective tax rate for the year ended December 31, 1998
of 15.5% represents the tax expense on book losses during 1998. The book basis
loss before income taxes is significantly more than the tax basis loss.
Accordingly, the effective tax rate differs from the statutory rate. Prime's
effective tax rate in 1997 was (33.7%).
Income (loss) from discontinued operations, net of tax. Discontinued
operations represent the income (loss) from Prime's ophthalmology division. Loss
from discontinued operations for the year ended December 31, 1998 was $34.9
million. In 1997, income from discontinued operations was $0.6 million.
Net loss. The company had a net loss of $38.1 million for the year ended
December 31, 1998 compared to a net loss of $1.4 million for the year ended
December 31, 1997, an increase in loss of $36.7 million. This change was the
result of the $34.9 million loss from discontinued operations in 1998.
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 December
31, 1999, the company had cash and cash equivalents of approximately $2.9
million and $0.8 million of additional borrowing capacity available under its
revolving credit facility, net of a $0.4 million letter of credit obligation.
In August 1999, in connection with the mergers, the company entered into a
loan agreement (the "Credit Facility") with Bank Austria. Proceeds from the
Credit Facility were used to pay certain indebtedness of Prime Vision Health and
OptiCare Eye Health Centers 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. 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. As of December 31,
1999, the company had advances outstanding of $11.5 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% (in January 2000, the rate decreased to LIBOR
plus 1.75%). 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 year ended December 31, 1999 the company used $0.4 million in
operating activities, $1.2 million in investing activities and $1.5 million in
financing activities. Cash used in operating activities included $2.3 million of
discontinued operations partially offset by a non-cash charge of 2.0 million of
depreciation and amortization. Cash used in investing activities included $1.9
million of capital expenditures. Net cash used in financing activities included
$32.5 million for the repayment of the old credit facility and $33.0 million of
proceeds from the new credit facility.
27
<PAGE>
of borrowings under the company's revolving credit facility, which is partially
offset by $1.7 million of principal repayments.
For the year ended December 31, 1998 the company generated $2.2 million in
operating activities and $1.9 million in financing activities while investing
activities used cash of $0.6 million. Cash from operating activities represents
a $3.2 million net loss from continuing operations, a non-cash charge of $1.4
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 $0.6 million of capital expenditures.
For the year ended December 31, 1997, proceeds from the issuance of
long-term debt totaled $28.8 million, which was primarily used in the
discontinued operations of the company.
As of December 31, 1999, under agreements with the North Carolina and Texas
Departments of Insurance, the company was 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 declare or pay dividends or otherwise
transfer any funds from its limited purpose health maintenance organization in
Texas without prior approval from the Department of Insurance. As of January 1,
2000, the company withdrew its HMO license in North Carolina and is no longer
subject to any liquidity restrictions with the North Carolina Department of
Insurance. The company does not believe the requirements of the Texas Department
of Insurance will have a material impact on the company's liquidity.
In January 2000, the company completed the sale of 3,571,429 registered
shares of common stock. The net proceeds from the stock offering were
approximately $12.5 million, which included the cancellation of a $2 million
subordinated note payable previously issued by the company. The company used
$7.0 million of the net proceeds to pay down long-term debt and expects to use
the remaining proceeds for, among other things, expansion of laser correction,
working capital and general corporate purposes.
Management believes that the combination of funds expected to be provided
by its operations and its Credit Facility will be sufficient to meet 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.
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 past three years.
28
<PAGE>
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-K 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-K. 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-K or to reflect the
occurrence of unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is subject to market risk from exposure to changes in interest
rates based on financing activities under the company's 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 the year 2000, although there can be no assurances that interest rates
will not significantly change. An increase of 10% in the interest rate payable
by the company would increase the annual interest expense by $0.3 million,
assuming that the company's borrowing level is unchanged. The company did not
use derivative instruments to adjust the company's interest rate risk profile
during the year ended December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the reports of
independent certified public accountants thereon are set forth on pages F-1
through F- 24 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Our board of directors formally approved the appointment of Deloitte &
Touche LLP as its
29
<PAGE>
independent accountants on August 30, 1999, and at the same time, determined not
to engage Ernst & Young LLP as the Company's independent accountants for the
year ended December 31, 1999. Ernst & Young LLP audited Saratoga's consolidated
financial statements as of and for the year ended December 31, 1998. The board
of directors of Saratoga formally approved the appointment of Ernst & Young LLP,
of Dallas, Texas, as its independent accountants to audit Saratoga's
consolidated financial statements for 1998 on March 29, 1999.
The report of Ernst & Young LLP on Saratoga's consolidated financial
statements for 1998 contained no adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with Ernst & Young's audit of Saratoga's financial
statements for 1998, and through March 29, 1999, Ernst & Young LLP had no
disagreements with the company or Saratoga on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Ernst &
Young LLP, would have caused them to make reference to those disagreements in
their report on Saratoga's consolidated financial statements for 1998. At
Saratoga's request, Ernst & Young LLP furnished a letter addressed to the
Securities and Exchange Commission stating that it agrees with the previous
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position of each of our
directors and executive officers as of March 15, 2000. Each director will hold
office until the next annual meeting of stockholders or until his or her
successor has been elected and qualified. Our executive officers are appointed
by and serve at the discretion of the board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Dean J. Yimoyines, M.D. 52 Chairman of the Board of Directors, President and Chief Executive
Officer
Steven L. Ditman 45 Executive Vice President, Chief Financial Officer and Director
Allan L.M. Barker, O.D. 52 President of the Laser Correction and Professional Services Division
Martin E. Franklin 35 Director
John F. Croweak 63 Director
Carl J. Schramm 53 Director
Ian G.H. Ashken 39 Director
D. Blair Harrold, O.D. 53 President of Retail Optometry, North Carolina Operations
Samuel B. Petteway 43 President of the Managed Care Division
Gordon A. Bishop 50 President of the Buying Group
</TABLE>
Dr. Yimoyines has served as Chairman of the Board, Chief Executive Officer
and President since August 13, 1999. Dr. Yimoyines is a founder of OptiCare Eye
Health Centers and has served as the
30
<PAGE>
Chairman, President and Chief Executive Officer of OptiCare Eye Health Centers
since 1985. Dr. Yimoyines has been instrumental in the development and
implementation of OptiCare Eye Health Centers business for nearly twenty years.
He graduated with distinction from the George Washington School of Medicine. He
completed his ophthalmology residency at the Massachusetts Eye and Ear
Infirmary, Harvard Medical School. He completed fellowship training in
vitreoretinal surgery at the Retina Associates in Boston. Dr. Yimoyines is a
graduate of the OPM (Owner/President Management) program at Harvard Business
School and a Fellow of the American Academy of Ophthalmology.
Mr. Ditman has served as Executive Vice President, Chief Financial Officer
and a Director since August 13, 1999. Mr. Ditman served as a Director of
OptiCare Eye Health Centers since July 1989 and the Chief Financial Officer and
Treasurer of OptiCare Eye Health Centers since March, 1992. Mr. Ditman has also
served as Chief Operating Officer of OptiCare Eye Health Centers since May,
1998. From October, 1986 until March, 1992, Mr. Ditman served as Director,
Chief Financial Officer and Treasurer of the Daytona Group and Drubner
Broadcasting. During the same period of time, Mr. Ditman also served as Chief
Financial Officer and Treasurer of The Drubner Investment Group. Mr. Ditman
served as Corporate Controller of Victor Electric Wire and Cable Corporation
from November, 1981 until October, 1986. Mr. Ditman served as a senior auditor
for KPMG Peat Marwick from 1977 to 1981. Mr. Ditman received his Bachelor of
Science in Accounting from Northeastern University in June 1977. Mr. Ditman
became a Certified Public Accountant in 1980 and was licensed in the State of
Rhode Island.
Dr. Barker is President of the Laser Correction and Professional Services
Division and has served as a Director since August 13, 1999. Dr. Barker has
been a senior executive officer and Director of Prime since 1996. He is a
licensed optometrist with 25 years experience in the eye care industry. From
October, 1989 to July, 1996, Dr. Barker served as co-president of Consolidated
Eye Care, Inc., the parent company of AECC/Pearlman Buying Group and AECC Total
Vision Health Plan, Inc. Also during this period Dr. Barker served as vice
president and secretary of Optometric Eye Care Center, P.A. Dr. Barker received
his Doctor of Optometry degree in 1975 from Southern College of Optometry in
Memphis, Tennessee.
Mr. Franklin was a Director of PrimeVision Health from July, 1998 to
August 13, 1999. From February 1, 1997 through February 8, 2000, Mr. Franklin
has served as Chairman of the Board of Directors of Bolle Inc., an AMEX
company, which is a manufacturer, marketer and distributor of premium eyewear.
Mr. Franklin has been Chairman and Chief Executive Officer of Marlin Holdings,
Inc., the general partner of Marlin Capital, L.P., a private investment
partnership, since October, 1996. From May, 1996 until December, 1998, Mr.
Franklin served as Chairman and Chief Executive Officer of Lumen Technologies,
Inc., a NYSE company, which is a manufacturer and distributor of specialty
lighting equipment, and served as Executive Chairman from May, 1996 until
December, 1998. Mr. Franklin was Chairman of the Board and Chief Executive
Officer of Lumen's predecessor, Benson Eyecare Corporation from October, 1992
to May, 1996 and President from November, 1993 until May, 1996. Mr. Franklin
was non-executive Chairman and a director of Eyecare Products plc, a London
Stock Exchange Company, from December, 1993 until February, 1999. In addition,
Mr Franklin has served as a director of Specialty Catalog Corp., a NASDAQ
listed company, since 1994 and of Corporate Express, Inc., a NASDAQ listed
company since March, 1999. Mr. Franklin also serves on the boards of a number
of privately held companies and charitable organizations. Mr. Franklin received
a B.A. in Political Science from the University of Pennsylvania in 1986.
Mr. Croweak has served as a Director since August 13, 1999. Mr. Croweak
was a Director of OptiCare Eye Health Centers from September, 1995 to August
13, 1999. Mr Croweak was Chairman of the Board of Directors of Anthem Blue
Cross and Blue Shield of Connecticut state chartered from August, 1997 until
December, 1999. From April 4, 1988 through August, 1997, Mr. Croweak was Chief
Executive Officer
31
<PAGE>
of Blue Cross and Blue Shield of Connecticut. Mr. Croweak served as a director
of Anthem Insurance Companies, Inc., a multi-state health insurance company
based in Indianapolis, Indiana, from August, 1997 until March, 2000. He is also
a director of United Illuminating, a diversified utility operator based in New
Haven, Connecticut and The New Haven Savings Bank, a state chartered savings
bank based in New Haven, Connecticut. Mr. Croweak received a BBA degree from
the University of Cincinnati in 1959.
Mr. Schramm is President of Greenspring Advisors, Inc., a consulting and
merchant banking firm specializing in health care information founded in 1995.
From 1993 to 1995, Mr. Schramm served as Executive Vice President of Fortis,
Inc., an international insurance and financial services company, where he
directed American health insurance operations. From 1987 through 1992, Mr.
Schramm was President of the Health Insurance Association of America, the
national trade association of commercial health companies. Prior to entering
the insurance industry, Mr. Schramm was a professor of Health Policy and
Management at Johns Hopkins from 1972 to 1987. Mr. Schramm holds a Ph.D. in
Economics from the University of Wisconsin and received his legal education at
Georgetown University.
Mr. Ashken, A.C.A., has served as a Director since August 13, 1999. Mr.
Ashken has been Vice Chairman of Marlin Holdings, Inc., the general partner of
Marlin Capital, L.P., since October, 1996. Mr. Ashken served as Vice-Chairman
and Secretary of Bolle Inc., an AMEX company, which is a manufacturer, marketer
and distributor of premium eyewear, from December, 1998 through February 8,
2000. From February, 1997 until his appointment as Vice-Chairman, Mr. Ashken
served as Executive Vice President, Chief Financial Officer, Assistant
Secretary and a Director of Bolle Inc. Mr. Ashken was elected Executive Vice
President, Chief Financial Officer, Assistant Secretary and a Director of Lumen
Technologies, Inc., a NYSE company, which is a manufacturer and distributor of
specialty lighting equipment, from December, 1995 until December, 1998. Mr.
Ashken was Chief Financial Officer of Lumen's predecessor, Benson Eyecare
Corporation, and a director of Benson Eyecare from October, 1992 to May, 1996.
Mr. Ashken also served as Benson Eyecare's Executive Vice President from
October, 1994 to May, 1996; and, Assistant Secretary from December, 1993 to
May, 1996. Mr. Ashken was a director of Eyecare Products plc, a London Stock
Exchange Company, from August, 1994 until in February, 1999. Mr. Ashken
received his B.A. (Hons) in Economics and Account from the University of
Newcastle in England.
Dr. Harrold has served as the President of Retail Optometry, North
Carolina Operations since August 13, 1999. Prior thereto, Dr. Harrold served as
a senior executive and director of PrimeVision Health since its acquisition of
Consolidated Eye Care, Inc. in July, 1996. Dr. Harrold founded Consolidated
Eyecare in 1989 and served as its Co-President until its acquisition by
PrimeVision Health. Dr. Harrold is a licensed optometrist, having graduated
from Ohio State University with a B.S. in physiological optics and a Doctor of
Optometry degree in 1971. Dr. Harrold has also served as President of
Optometric Eye Care Center, PA, a North Carolina professional association. Dr.
Harrold is a member of the American Optometric Association and the North
Carolina State Optometric Association and is also a Fellow in the American
Academy of Optometry.
Mr. Petteway has served as the President of the Managed Care Division
since August 13, 1999. Mr. Petteway has been President of PrimeVision Health's
managed care business operations since July, 1996 and, prior to PrimeVision
Health's acquisition of Consolidated Eye Care, Inc, the managed care business
operations of Consolidated Eyecare since 1989. Since October 1994, Mr. Petteway
has served as Chairman of the Board for Association of Eye Care Centers Total
Vision Health Plan, Inc. From April, 1995 through August 13, 1999, Mr. Petteway
served as the Chairman of the Board of AECC Total Vision Health Plan of Texas,
Inc., which are both owned by Prime. Prior to 1989, Mr. Petteway was President
of Strategic Health Services, providing consulting services to hospitals,
physicians, pharmacies and companies. Mr. Petteway
32
<PAGE>
graduated from the University of North Carolina at Chapel Hill with a Bachelor
of Science in Pharmacy in 1979 and received a Masters in Business Administration
with Distinction from Campbell University in 1985.
Mr. Bishop has served as President of our Buying Group since August, 1999.
In that position, he has overall responsibility for our Buying Group and all
Connecticut retail optical operations. From June, 1998 to August, 1999, Mr.
Bishop directed the retail operations of OptiCare Eye Health Centers, Inc. Mr.
Bishop has over 30 years of experience in the optical industry, having served in
a variety of different capacities with different organizations in the United
States and Canada. From August of 1997 to April, 1998, he served as Vice
President of Operations for Public Optical. From July of 1994 to April of 1997,
he served as Operations Manager for Vogue Optical. From June of 1990 to July of
1994, he held positions of increasing responsibility with Standard Optical Ltd.
He ultimately held the position of Vice President of Operations for that
company. Mr. Bishop received his Business Administration Diploma from
Confederation College of Applied Arts and Technology and subsequently obtained
an Ophthalmic Dispensing Diploma from Ryerson Polytechnic University. He holds a
variety of eye care professional certifications and is certified by the American
Board of Opticianry and holds a Fellowship in the National Academy of
Opticianry.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On December 6, 1999 a former Director of the Company, David A. Durfee,
filed an amendment to a Form 3 originally filed in August of 1999. The original
Form 3 was filed on a timely basis, but Dr. Durfee's beneficial share ownership
was inadvertently misstated. A Form 3 and a Form 4 filed by us on behalf of
another Director, Martin E. Franklin, were each several days late because of
confusion over the correct privacy code assigned to Mr. Franklin for purposes of
electronic filings on the EDGAR system. The Form 3 reflected Mr. Franklin's
beneficial ownership at the time he became a Director of the Company on August
13, 1999. The Form 4 reflected one transaction - a purchase of common stock.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The Executive Compensation discussion below for periods prior to the
closing of the mergers on August 13, 1999, includes executive compensation of
directors and officers earned from PrimeVision Health and OptiCare Eye Health
Centers, as the case may be, and does not include any information relating to
Saratoga or Saratoga's officers and directors prior to the mergers.
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal years ended December 31,
1999, 1998 and 1997, compensation paid us to the Chief Executive Officer and our
four other most highly compensated executive officers whose total compensation
exceeded $100,000.
33
<PAGE>
<TABLE>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
---------------- -----------------
<CAPTION> ALL OTHER
NAME AND PRINCIPAL POSITION (9) YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION (8)
- ------------------------------- ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dean J. Yimoyines, M.D. (1) 1999 403,650 62,152 325,000(7) 10,671
Chairman of the Board of 1998 360,537 139,756 286,450(6) 10,948
Directors, President and 1997 350,000 020,803 0 7,034
Chief Executive Officer
Steven L. Ditman (2) 1999 159,135 20,000 150,000(7) 2,700
Executive Vice President, 1998 145,673 32,000 72,977(6) 0
Chief Financial Officer 1997 125,000 20,000 0 692
and Director
Allan L.M. Barker, O.D. (3) 1999 263,161 0 0 5,000
President of the Laser 1998 305,028 271 0 5,160
Correction and Professional 1997 299,839 0 0 4,750
Services Division and Director
D. Blair Harrold, O.D. (4) 1999 263,485 0 0 3,566
President of Retail 1998 305,028 0 0 5,000
Optometry, North 1997 299,789 0 0 5,474
Carolina Operations
Samuel B. Petteway (5) 1999 294,590 63,868 45,000(7) 5,000
President of the Managed 1998 201,000 57,582 0 5,206
Care Division 1997 197,077 10,000 18,828(6) 4,750
</TABLE>
(1) The information includes the aggregate compensation paid by OptiCare Eye
Health Centers and OptiCare P.C. for the services of Dr. Yimoyines.
(2) The information includes the compensation paid by OptiCare Eye Health
Centers for the services of Mr. Ditman.
(3) The information includes the aggregate compensation paid by PrimeVision
Health and Consolidated Eye Care for the services of Dr. Barker.
(4) The information includes the aggregate compensation paid by PrimeVision
Health and Consolidated Eye Care for the services of Dr. Harrold.
(5) The information includes the aggregate compensation paid by PrimeVision
Health and Consolidated Eye Care for the services of Mr. Petteway.
(6) All awards reflected represent options currently held by our executive
officers which were received in connection with the mergers on August 13,
1999 in exchange for options of OptiCare Eye Health Centers capital stock
or PrimeVision Health common stock, as the case may be.
(7) Upon the closing of the mergers on August 13, 1999, we granted options to
purchase 325,000, 150,000 and 45,000 shares of common stock under our
Performance Stock Program to Dr. Yimoyines, Mr. Ditman and Mr. Petteway,
respectively.
34
<PAGE>
(8) The executive officers were provided with certain group life, health,
medical and other non-cash benefits generally available to all salaried
employees and not included in this column pursuant to the rules promulgated
under the Exchange Act. The amounts shown include (i) matching
contributions by us under a 401(k) retirement savings plan maintained by us
for each of Messrs. Yimoyines $1,200, $1,200 and $1,125, Ditman $0, $0 and
$692, Barker $5,000, $5,160 and $4,750, Harrold $3,566, $5,000 and $5,474
and Petteway $5,000, $5,206 and $4,750, for the years 1999, 1998 and 1997,
respectively, (ii) Insurance premiums paid by us on behalf of Dr. Yimoyines
for disability insurance was $2,555 for each of the years 1999, 1998 and
1997, (iii) Car allowance paid by us on behalf of Dr. Yimoyines was $3,438
and $3,025 for the years 1999 and 1998, respectively, and on behalf of Mr.
Ditman of $2,700 for the year 1999, (iv) Country Club dues paid by us on
behalf of Dr. Yimoyines were $3,478, $4,168 and $3,354 for the years 1999,
1998 and 1997, respectively.
(9) The Summary Compensation table does not include any information relating to
Thomas Cook who served as the Chief Executive Officer and President of
Saratoga prior to the mergers effected on August 13, 1999.
OPTIONS GRANTED IN 1999
The following table sets forth information regarding options granted in
1999 and currently held by our Chief Executive Officer and each of the other
named executive officers. In accordance with the rules of the Commission, the
table sets forth the hypothetical gains or "option spreads" that would exist for
the options at the end of their terms. These gains are based on assumed rates of
annual compound stock price appreciation of our common stock of 5% and 10% from
the date the options were granted to the end of the option terms.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL REALIZABLE VALUE
GRANTS AT ASSUMED ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL 1999 SHARE DATE 5% 10%
- ----------- ------------ ---------------- ------------ ------------- -- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Dean J. Yimoyines, M.D. 325,000(1) 45.1%(2) $5.85 8/09 0 $698,750
Steven L. Ditman 150,000(1) 20.8%(2) $5.85 8/09 0 $322,500
Samuel B. Petteway 45,000(1) 6.2%(2) $5.85 8/09 0 $ 96,873
</TABLE>
(1) Granted under our Performance Stock Program. Date of grant was August 13,
1999. Initial exercise date is August 13, 2000; options vest in
installments over a period of four years. Excludes options to purchase
286,450, 72,977 and 18,828 shares of common stock which were received in
connection with the mergers on August 13, 1999 in exchange for options of
OptiCare Eye Health Centers capital stock or PrimeVision Health common
stock, as the case may be.
(2) The total options granted excludes options granted in connection with the
mergers on August 13, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR END OPTION VALUES
35
<PAGE>
The following table summarizes certain information regarding option values
of our options as of December 31, 1999, held by the Chief Executive Officer and
each of the other named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT 12/31/99 (#)(1) OPTIONS AT 12/31/99($)(1)
------------------------------------- ----------------------------------------
NON- NON-
NAME EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
- ---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Dean J. Yimoyines, M.D. 143,224 468,226 $134,631 $134,631
Steven L. Ditman 36,488 186,489 $ 34,299 $ 34,299
Samuel B. Petteway 17,782 46,046 0 0
</TABLE>
(1) Includes options received in exchange for options of OptiCare Eye Health
Centers capital stock or PrimeVision Health common stock, as the case may
be, as well as options issued in fiscal 1999 after the mergers.
COMPENSATION PLANS
We maintain the following plans for the benefit of employees, including
directors and executive officers:
o Performance Stock Program;
o 1999 Employee Stock Purchase Plan;
o 2000 Professional Stock Purchase Plan;
o 401(k) plans; and
o health and other insurance plans.
We do not currently maintain a defined benefit pension plan or other
actuarial retirement plan for our named executive officers or otherwise.
PERFORMANCE STOCK PROGRAM
GENERAL
Our Performance Stock Program was adopted by the board of directors on May
14, 1999, and approved by our stockholders on August 13, 1999. The Program
provides for the issuance of awards of an aggregate maximum of up to the lesser
of (a) 3,000,000 shares of our common stock, or (b) 15% of the sum of (1) the
number of shares outstanding at the time the limitation in this clause (b) is
calculated, (2) the number of shares subject to options and performance shares
then outstanding, and (3) the number of shares then available for future awards
under the Program.
36
<PAGE>
Awards may be comprised of incentive stock options, nonqualified stock
options, restricted stock, performance shares or cash units, each as described
below. No single individual may receive awards for (a) more than 600,000 shares
in 1999 (excluding substitute options granted to option holders of OptiCare Eye
Health Centers and PrimeVision Health pursuant to the merger agreement) or (b)
more than 200,000 shares in any subsequent calendar year.
The number of persons currently eligible for awards is approximately 925.
Authorized but previously unissued shares, treasury shares and shares forfeited
under the Program may be issued again under the Program up to the maximum
aggregate limit.
The Program provides for administration by either the board of directors or
the compensation committee of the board of directors. The compensation committee
has the general authority to interpret the provisions of the Program and adopt
such rules as it deems necessary or desirable for the administration of the
Program. The compensation committee also handles the selection of employees,
consultants and other service providers who will participate in the Program, and
the determination of the size and terms of awards made under the Program.
The Program will terminate upon adoption by the board of directors of a
resolution terminating the Program, or upon the award and vesting of the maximum
aggregate number of shares of common stock available under the Program.
As of March 15, 2000, no options had been exercised pursuant to the
Program, options to purchase 1,316,778 shares were outstanding, and 896,790
shares remained available for future grants. On August 13, 1999, an aggregate of
approximately 630,737 options were granted to option holders of OptiCare Eye
Health Centers and PrimeVision Health in substitution for such options, which
contained substantially identical terms as the options substituted therefor,
except for a change in the exercise price and the number of shares for which
options can be exercised to reflect the mergers. In addition, after the
consummation of the mergers, on August 13, 1999 an aggregate of approximately
721,250 options were granted to employees.
NON-QUALIFIED AND INCENTIVE STOCK OPTIONS
The compensation committee may designate options as either non-qualified
stock options (i.e., options not entitled to special tax benefits under the
Internal Revenue Code) or incentive stock options pursuant to Section 422 of the
Code. Incentive stock options may only be issued to employees and must be issued
at an option price no less than the fair market value of our common stock on the
date of the grant (and 110% of fair market value in the case of 10%
stockholders). Subject to the foregoing, the price of the shares subject to each
option is set by the compensation committee.
The exercise of options granted under the Program is subject to terms and
conditions set by the compensation committee and set in the agreement evidencing
each option. The purchase price for the shares acquired upon exercise of the
option may be paid (a) in cash or by certified check, or (b) at the discretion
of the committee, by delivery of one or more stock certificates evidencing other
shares of our common stock with a fair market value equal to the option price,
or (c) by a combination of cash and common stock as described in clauses (a) and
(b).
The compensation committee sets the expiration date of each option, but in
the case of incentive stock options, the expiration date may not be longer than
ten years from the date of the grant (or five years in the case of 10%
stockholders).
37
<PAGE>
All incentive stock options will terminate on the earlier of the expiration
date or one year following termination of employment due to disability or death.
Upon termination of employment for any reason other than disability or death,
all options will expire on the earlier of their expiration date or ninety days
following termination of employment, unless otherwise provided in an applicable
agreement or instrument. Non-qualified stock options may be subject to the same
provisions with respect to termination, or may contain such other provisions as
the compensation committee determines.
Options are not transferable or assignable other than by will or the laws
of descent and distribution and are exercisable during the participant's
lifetime only by the participant, except that the compensation committee may, in
its sole discretion, allow for transfers of awards (other than incentive stock
options) to other persons or entities.
RESTRICTED STOCK
An award of a share of restricted stock is an award to a participant of a
share of common stock generally conditioned upon the attainment of performance
goals established by the compensation committee for the performance period to
which the award relates and the continued employment or retention as a service
provider of the participant with us or any of our majority-owned subsidiaries
through the end of the performance period. During the performance period, the
participant has all of the rights of a stockholder, including the right to
receive dividends, except that the participant shall not have custody of the
shares of common stock nor the right to transfer ownership of the shares during
the performance period.
Generally, a participant's termination of employment or provision of
services to us prior to the end of the relevant performance period results in
forfeiture of an award of restricted stock, although the compensation committee
is authorized to determine that all or any portion of the award shall not be
forfeited. If a portion of a restricted stock award is forfeited, the
non-forfeited portion is reduced by the amount of any dividends previously paid
to the participant with respect to the forfeited portion.
PERFORMANCE SHARES OR CASH UNITS
The compensation committee may establish performance programs and grant
awards of performance shares or cash units pursuant to such programs. The
compensation committee will establish performance goals and a schedule relating
to such goals to determine the performance awards to be granted to participants.
At the completion of a performance award period, the compensation committee
shall determine the award to be made to each participant by multiplying the
number of performance units granted to each participant by a performance factor
representing the degree of attainment of the performance goals. Performance
shares shall generally be paid in the form of common stock, and cash units shall
be paid in cash, provided that the compensation committee may pay performance
shares in the form of cash at the request of a participant.
THE EFFECT OF A CHANGE IN CONTROL
In the event of a change in control of the company, as defined in the
Program, all awards will become fully vested and all options will become
immediately exercisable if the compensation committee so provides, if an award
so provides or if an employment agreement with a recipient of an award so
provides.
38
<PAGE>
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
on May 14, 1999 and approved by our stockholders on August 13, 1999. The 1999
Employee Stock Purchase Plan was amended and restated by our board of directors
on March 27, 2000 in order to allow for the purchase of fractional shares of
common stock and to reduce the number of shares of common stock available for
issuance to the extent of our common stock issued under our 2000 Professional
Employee Stock Purchase Plan, which plan is described below. The Amended and
Restated 1999 Employee Stock Purchase Plan (the "Employee Plan") provides for a
maximum of 450,000 shares of our common stock to be sold to employees, which
number shall be reduced by the number of shares of common stock issued under the
2000 Professional Employee Stock Purchase Plan. No more than 450,000 shares of
common stock may be issued pursuant to these two plans in aggregate. Authorized
but previously unissued shares and treasury shares may be issued under the
Employee Plan up to the maximum aggregate limit.
The Employee Plan is administered by the compensation committee. The
compensation committee has the general authority to interpret the provisions of
the Employee Plan and adopt such rules as it deems necessary or desirable for
the administration of the Employee Plan.
The Employee Plan will terminate upon adoption by the board of a resolution
terminating the Employee Plan, or upon the sale of the maximum aggregate number
of shares of common stock available under the Employee Plan.
ELIGIBILITY
All of our employees and those of our subsidiaries, other than certain 5%
stockholders, are eligible to participate in the Employee Plan if they
customarily work at least 20 hours per week for at least five months in a year.
ELECTION TO PARTICIPATE
Eligible employees elect to participate in the Employee Plan by
contributing a portion of their compensation (not to exceed the lesser of 20% of
base pay or $21,250) to purchase shares of common stock under the Employee Plan.
Participating employees may change their elections at any time, but not more
than once in a calendar quarter.
PURCHASE PRICE
Employee contributions will be used to purchase shares of common stock as
of the last business day of each calendar quarter at a price equal to 85% of the
then fair market value of such shares. Only whole numbers of shares will be
purchased for each employee, with any excess contributions being carried over to
the next quarter.
2000 PROFESSIONAL EMPLOYEE STOCK PURCHASE PLAN
On March 27, 2000, the 2000 Professional Employee Stock Purchase Plan (the
"2000 Plan") was adopted and approved by our board of directors and the 2000
Plan became effective. The 2000 Plan allows for the participation of
optometrists and ophthalmologists employed by professional corporations
affiliated with us through professional service agreements. See "Certain
Relationships and Related Transactions."
39
<PAGE>
The terms of this second plan are identical to the Employee Plan except
that (i) optometrists and ophthalmologists employed by professional corporations
affiliated to us may be eligible to participate in this plan and (ii) this plan
will not qualify as a plan adopted under Section 423 of the Internal Revenue
Code of 1986, as amended. The number of shares available for issuance under the
Employee Stock Purchase Plan and the 2000 Professional Employee Stock Purchase
Plan aggregate to 450,000 shares.
EMPLOYMENT AGREEMENTS WITH CERTAIN OFFICERS
The provisions of the employment agreements of Messrs. Yimoyines, Ditman,
Barker, Harrold and Petteway are summarized below.
Dean J. Yimoyines. The term of his employment agreement is three years,
expiring August 13, 2002, and it is automatically renewable for additional one
year terms unless either party gives six months notice. Dr. Yimoyines may
terminate his employment agreement without cause upon six months notice. Dr.
Yimoyines' base annual salary and guaranteed bonus is $410,000, and he may
receive performance-based bonuses as determined by the Board of Directors, up to
100% of base salary plus guaranteed bonus, subject to the achievement of goals
established for each calendar year by the Board of Directors or the Compensation
Committee. Dr. Yimoyines is entitled to a disability benefit consisting of full
base salary and guaranteed bonus for the first six months of a disability, and
thereafter 65% of base salary, guaranteed bonus and performance-based bonus
earned as of the date of disability and to a life insurance policy on his life
in the amount of $1,500,000 payable to a beneficiary designated by Dr.
Yimoyines. If his employment is terminated on account of disability or without
cause by the company, or if the agreement is not renewed at the end of the
initial three year term, Dr. Yimoyines shall receive a lump sum payment in an
amount equal to three times total compensation for the year prior to
termination, plus continuation of all benefits for a period of three years after
termination. If (a) during the three year period following a change in control,
Dr. Yimoyines' duties are materially diminished, his principal place of
employment is moved more than 50 miles, or his employment is terminated on
account of disability or by the company without cause or by now-renewal of the
agreement, or (b) Dr. Yimoyines voluntarily terminates his employment during the
one year period following a change in control, then Dr. Yimoyines shall receive
severance pay equal to three times total compensation for the year ended prior
to the change in control. If Dr. Yimoyines' employment is not terminated at our
election; including a termination on account of non-renewal after the initial
3-year term, then (1) during the term of the agreement and for a period of 18
months after the date of termination of employment, Dr. Yimoyines shall not
engage in the practice of any branch of ophthalmology or ophthalmic surgery in
any capacity in Connecticut or any portion of any other state where the company
actively conducts business; and (2) for the 12 month period following
termination, Dr. Yimoyines may not render services to any organization which is
engaged in (a) researching, developing, marketing or selling any eye wear or eye
care product, process or service or (b) management of an ophthalmic medical
practice which competes with any of our products, processes or services.
40
<PAGE>
Steven L. Ditman. The term of his employment is three years expiring August
13, 2002, renewable for one year terms, subject to termination by Mr. Ditman
without cause upon six months' notice. His base annual salary, excluding the
cost of certain perquisites, is $175,000, and he may receive performance-based
bonuses as determined by the Board of Directors, subject to the achievement of
goals established for each calendar year by the Board or the Compensation
Committee, up to 100% of base salary. If he becomes disabled, he is entitled to
full base salary for first three months, and thereafter 65% of base salary and
performance-based bonus earned as of the date of disability. He is also entitled
to a death benefit of $150,000. If (1) we do not renew Mr. Ditman's agreement at
the end of the initial 3-year term; (2) we terminate Mr. Ditman's employment
agreement without cause; (3) Mr. Ditman voluntarily terminates his employment
during the one year period following a change of control; or (4) during the
three year period following a change in control, Mr. Ditman's duties are
materially diminished, his principal place of employment is moved more than 50
miles, or his employment is terminated by us without cause or by non-renewal of
the agreement, then he shall receive a lump sum payment equal to two times his
total compensation for the year prior to termination. During the term of the
agreement and for a period of 18 months after termination, subject to certain
exceptions, Mr. Ditman may not render services directly or indirectly to any
organization which is engaged in (1) researching, developing, marketing or
selling any eye wear or eye care product, process or service which competes with
us, or (2) managing the business practice of ophthalmologists, optometrists, or
opticians.
Allan L.M. Barker and D. Blair Harrold. The term of each agreement is seven
years, expiring August 13, 2006, and is automatically renewable for subsequent
one year terms unless either party gives six month prior notice. The employee
may terminate the agreement without cause upon six months' notice. Base annual
salary is $150,000, subject to cost of living adjustments on the third and sixth
anniversary dates. Each employee may receive performance-based bonuses as
determined by the Board of Directors, subject to the achievement of goals
established for each calendar year by the Board or the Compensation Committee,
up to 100% of base salary. If the employee is disabled, he receives full base
salary for the first three months. The employee is entitled to receive a death
benefit of $150,000. If the employee is terminated by the company without cause,
he is entitled to a lump sum payment equal to the base salary the employee would
have received from the date of termination to the end of the term, and
continuation of benefits to the end of the term; if the employee terminates his
employment with us following a change in control, he is entitled to a lump sum
payment equal to one year of base salary. During the term of the agreement and
for a period of 18 months after termination, subject to certain exceptions, the
employee may not render services directly or indirectly to any organization
which is engaged in (1) researching, developing, marketing or selling any eye
wear or eye care product, process or service which competes with us, or (2)
managing the business practice of ophthalmologists, optometrists, or opticians.
Samuel B. Petteway, President of the Managed Care division. The term of
the agreement is three years expiring August 13, 2002, and is automatically
renewable for subsequent one year terms unless either party gives six months
prior notice. Mr. Petteway may terminate the agreement without cause upon six
months' notice and we may terminate without cause upon 3 months' notice. His
base annual salary and guaranteed bonuses are: 1999: $221,000; 2000: $232,000;
2001: $243,000; 2002: $193,000. If the Managed Care division achieves specific
targets of net operating profit in each year, Mr. Petteway will receive
performance bonuses of $73,000 for 1999, and $77,000 for 2000. Thereafter, the
Board shall determine net operating profit goals for 2001 and 2002, and Mr.
Petteway's bonuses for those years shall be $2,000 and $77,000, respectively if
such goals are achieved. Mr. Petteway shall also receive bonuses equal to
certain percentages of the growth of net operating income of the Managed Care
division. These bonuses are capped at $41,200 for 2000, $17,500 for 2001 and
$19,300 for 2002. He may also earn additional bonuses if we
41
<PAGE>
achieve certain goals. Mr. Petteway is entitled to disability benefits
consisting of full base salary bonuses for the first three months, and
thereafter 65% of base salary plus bonuses earned as of the date of disability
and to death benefits of $200,000. If the employee is terminated by us without
cause or if employee terminates his employment following a change of control, he
is entitled to a lump sum payment equal to 18 months' base salary. If the
employee terminates the agreement without cause, he is entitled to 12 months'
base salary, payable in monthly installments. During the term of the agreement
and for 12 months thereafter, the employee may not compete with our managed eye
care business.
COMPENSATION OF DIRECTORS
Directors who are also employees do not receive any additional compensation
for their service as directors. All other directors receive a fee of $1,000 per
board meeting attended in person, and $500 per committee meeting attended in
person. The chairman of the audit committee and the compensation committee,
receives an additional payment of $1,500 per year. We also reimburse directors
for their expenses incurred in connection with attendance at board and committee
meetings, including travel and lodging, if necessary.
Each non-employee director receives options to purchase 10,000 shares of
common stock upon their election to the board (the "election options"), and
thereafter options to purchase 5,000 shares at the time of each annual meeting
of stockholders. All such options will vest in tranches of one-third of the
award on the first, second and third anniversaries of the awards. However, each
option granted to non-employee directors serving as of January 1, 2000 will vest
in tranches of one-third of the award on the sixth month, eighteenth month and
thirtieth month after the grant of award.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee was formed on August 13, 1999. Mr. Croweak, who
is currently a member of the compensation committee, has never been one of our
officers or employees. Dr. Durfee, who was the other member of the committee
until his resignation on January 17, 2000, served as the acting Chief Executive
Officer and Senior Vice President of PrimeVision Health from 1996 until the
closing of the mergers on August 13, 1999. Prior to the formation of the
compensation committee, all decisions regarding executive compensation, salaries
and incentive compensation for our employees and consultants were made solely by
the board of directors and executive officers of PrimeVision Health and OptiCare
Eye Health Centers, as the case may be. On January 18, 2000 Mr. Schramm was
appointed to the compensation ommittee to fill the vacancy left by Dr. Durfee's
resignation. Mr. Schramm has never been one of our officers or employees.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, our certificate of
incorporation, as amended, provides that no director will be personally liable
to us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing
42
<PAGE>
violation of law;
o under Section 174 of the Delaware General Corporation Law; and
o for any transaction from which the director derived an improper
personal benefit.
Our certificate of incorporation, as amended, and bylaws generally provide
that we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, including payment in advance of a final disposition
of a director's or officer's expenses and attorneys' fees incurred in defending
any action, suit or proceeding. We believe that the provisions will assist us in
attracting and retaining qualified individuals to serve as directors.
We have entered into indemnification agreements with each of our
directors. These indemnification agreements provide for the indemnification by
us of our directors for liability for acts and omissions as directors. We
believe that indemnification agreements are necessary to attract and retain
qualified persons as directors.
We currently maintain an executive liability insurance policy which
provides coverage for directors and officers. Under this policy, the insurer
agreed to pay, subject to certain exclusions, for any claim made against any of
our directors or officers for a wrongful act by any such director or officer.
There is no pending litigation or proceeding involving any of directors,
officers, employees or agent as to which indemnification is being sought other
than against Dean Yimoyines who is named as defendant in the OptiCare Eye Health
Center Physicians Action. See "Business -- Litigation." The board of directors
passed a resolution directing us to pay for all his expenses.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 2000 there were 12,543,557 shares of our common stock
outstanding. The following table sets forth as of March 15, 2000 certain
information regarding the beneficial ownership of the common stock outstanding
by (i) each person who is known us to own 5% or more of our common stock (the
holdings of certain unrelated entities listed below are based on shareholdings
disclosed in their public filings), (ii) each of the company's directors, (iii)
the company's four other most highly compensated executive officers whose total
compensation exceeded $100,000 and (iv) all of the company's executive officers
and directors as a group. Unless otherwise indicated, each of the stockholders
shown in the table below has sole voting and investment power with respect to
the shares beneficially owned.
<TABLE>
<CAPTION>
Name of Executive Officers, Directors or 5% Stockholders Shares Percent
- -------------------------------------------------------- ------ -------
<S> <C> <C>
Oxford Health Plans (2) 775,996 6.0%
Bank Austria Creditanstalt Corporate Finance, Inc. (3) 785,616 6.0%
Marlin Capital, L.P. 1,209,487 9.6%
Martin E. Franklin (4) 1,211,487 9.7%
43
<PAGE>
Palisade Capital Management 2,000,000 15.9%
Ian G.H. Ashken (5) 1,211,487 9.7%
Allan L.M. Barker, O.D. (6) 665,056 5.3%
D. Blair Harrold, O.D. 660,505 5.3%
Dean J. Yimoyines M.D. (7) 393,149 3.1%
Steven L. Ditman (8) 38,488 *
Samuel B. Petteway (9) 118,225 *
John F. Croweak 2,000 *
Carl J. Schramm 0 *
All executive officers and directors as a group (9 6,652,522 53%
persons)(4)(5)(6)(7)(8)(9)
</TABLE>
*Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days upon the exercise of an
option are treated as outstanding for purposes of determining beneficial
ownership and the percent beneficially owned by such individual and for the
executive officers and directors as a group.
(2) Includes 337,514 shares subject to currently exercisable warrants. The
address of Oxford is 800 Connecticut Avenue, Norwalk, Connecticut 06854.
(3) Includes 418,803 shares of non-voting convertible preferred stock held by
Bank Austria. Also includes warrants to purchase 100,000 shares of either
common stock or non-voting convertible preferred stock. Does not give
effect to provisions which may be included in the preferred stock and
warrants, which, for bank regulatory purposes, will restrict Bank Austria
from beneficially owning in excess of 4.99% of our outstanding common
stock. The address of Bank Austria is Two Ravinia Drive, Suite 168,
Atlanta, Georgia 30346.
(4) Includes 1,209,487 shares of common stock held by Marlin Capital, L.P. Mr.
Martin E. Franklin, who is a director of the company, is the Chairman,
Chief Executive Officer and principal stockholder of Marlin Holdings, Inc.
which is the general partner of Marlin Capital, L.P. Mr. Franklin
disclaims beneficial ownership of such shares. The address of Marlin
Capital, L.P. is 555 Theodore Fremd Ave., Rye, New York 10584.
(5) Includes 1,209,487 shares of common stock held by Marlin Capital, L.P. Mr.
Ian G.H. Ashken is the Vice Chairman of Marlin Holdings, Inc., which is
the general partner of Marlin Capital, L.P. Mr. Ashken disclaims
beneficial ownership of such shares.
(6) Includes 552 shares of common stock held by Dr. Barker's son, as to which
Dr. Barker disclaims beneficial ownership.
(7) Includes 249,825 shares of common stock held by Linda Yimoyines, wife of
Dean J. Yimoyines, and 143,224 shares of common stock issuable upon the
exercise of outstanding options.
(8) Includes 36,488 shares of common stock issuable upon the exercise of
outstanding options held by Mr. Ditman.
(9) Includes 17,782 shares of common stock issuable upon the exercise of
outstanding options held by Mr. Petteway.
44
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OPTICARE, P.C. PROFESSIONAL SERVICES AND SUPPORT AGREEMENT
OptiCare Eye Health Centers has entered into a Professional Services and
Support Agreement with OptiCare P.C., a Connecticut professional corporation,
effective December 1, 1995. Pursuant to that agreement, OptiCare P.C. employs
medical personnel and performs all ophthalmology and optometry services at the
Company's facilities in Connecticut. We select and provide the facilities at
which the services are performed and we are the exclusive provider of all
administrative and support services for the facilities operated by OptiCare P.C.
pursuant to this agreement. We bill and receive payment for the services
rendered by OptiCare P.C. and in turn pays OptiCare P.C. a service fee pursuant
to a compensation plan mutually agreed to each year. The company owns all the
rights to the "OptiCare" name and under the terms of the agreement, if the
agreement with OptiCare P.C. is terminated, OptiCare P.C. must change its name
and discontinue using the OptiCare name. The agreement expires on December 1,
2000 and automatically renews for successive two year terms unless either party
terminates the agreement at least 180 days before the next renewal date. Dean J.
Yimoyines, M.D., our Chairman, Chief Executive Officer, and President, is the
sole stockholder of OptiCare, P.C.
OPTOMETRIC EYE CARE CENTER, P.A. PROFESSIONAL SERVICE AND SUPPORT AGREEMENT
Through one of our subsidiaries, we have entered into a Professional
Services and Support Agreement with Optometric Eye Care Center, P.A., a North
Carolina professional association, effective August 10, 1999. Pursuant to that
agreement, Optometric Eye Care Center employs optometrists and technical
personnel and performs all optometry services at our facilities in North
Carolina. We select and provide the facilities at which the services are
performed, and we provide all administrative and support services for the
facilities operated by Optometric Eye Care Center pursuant to this agreement. We
bill and receive payment for the services rendered by Optometric Eye Care Center
and in turn pay Optometric Eye Care Center a service fee pursuant to a
compensation plan mutually agreed to each year. We own all the rights to the
trade names used at the practice locations under the terms of the agreement. If
the agreement with Optometric Eye Care Center is terminated, Optometric Eye Care
Center must change its name to a name substantially dissimilar to our trade
names. The agreement expires in 15 years and automatically renews for successive
five-year terms unless either party terminates the agreement at least 180 days
before the next renewal date. Drs. Allan L.M. Barker, a member of our board of
directors and President of our Laser Correction and Professional Services
Division, and D. Blair Harrold, the President of Retail Optometry, North
Carolina Operations, own all the capital stock of Optometric Eye Care Center.
CERTAIN LEASES
OptiCare Eye Health Centers is the tenant under a Lease Agreement dated
September 1, 1995 with O.C. Realty Associates Limited Partnership, as landlord.
The leased premises are located in New Milford, Connecticut and are used for the
practice of ophthalmology and optometry and incidental activities such as the
sale of eye glasses and corrective lenses. The term of the lease is 15 years.
Under the Lease Agreement, during the first five years of the leasehold term,
OptiCare Eye Health Centers pays a minimum annual rental to O.C. Realty
Associates Limited Partnership of $50,400, subject to adjustment at the end of
the first five years and every five years thereafter plus all taxes,
assessments, utilities and insurance related to the property being leased. In
addition, OptiCare Eye Health Centers has guaranteed the mortgage of O.C. Realty
Associates Limited Partnership, the amount of which was approximately $222,000
as of December 31, 1999. Dean J. Yimoyines, M.D., John Yimoyines, brother of
Dean Yimoyines, and Steven Ditman, our Executive
45
<PAGE>
Vice President, our Chief Financial Officer and a director each owns a 4.11%
interest in O.C. Realty Associates Limited Partnership.
OptiCare Eye Health Centers is the tenant under a Lease Agreement dated
September 1, 1995 with French's Mill Associates, as landlord. The leased
premises are located in Waterbury, Connecticut and are used for the practice of
ophthalmology and optometry, an ambulatory surgery center, and incidental
activities such as the sale of eye glasses and corrective lenses. The term of
the lease is fifteen years. Under the Lease Agreement, during the first five
years of the leasehold term, OptiCare Eye Health Centers pays annual rental to
French's Mill Associates of $604,000, subject to adjustment at the end of the
first five years and every five years thereafter. In addition, OptiCare Eye
Health Centers pays all taxes, assessments, utilities and insurance related to
the property being leased. Linda Yimoyines and John Yimoyines, the wife and
brother, respectively, of Dean Yimoyines, M.D., each owns a 14.28% interest in
French's Mill Associates.
We are currently negotiating an additional real property lease for
approximately 4,700 square feet with French's Mill Associates, which would be
used for clinical administrative space.
OptiCare Eye Health Centers is the tenant under a Lease dated September 30,
1997 with French's Mill Associates II, LLP, as landlord. The leased premises are
located in Waterbury, Connecticut and are the location of our main headquarters.
The term of the lease is fifteen years. Under the lease, during the first five
years of the leasehold term, OptiCare Eye Health Centers pays a minimum annual
rental to French's Mill Associates II, LLP of $76,800, subject to adjustment at
the end of the first five years and every five years thereafter. In addition,
OptiCare Eye Health Centers pays all taxes, assessments, utilities and insurance
related to the property being leased. Linda Yimoyines and John Yimoyines each
owns a 12.5% interest in French's Mill Associates II, LLP.
O.N.B. Associates owns approximately a 25% interest in Cross Street Medical
Building Partnership, the landlord under a lease dated September 22, 1987 and a
Lease Extension Agreement dated December 12, 1997 with Ophthalmic Physicians and
Surgeons, P.C., an entity that merged with and into OptiCare Eye Health Centers
in 1987. The leased premises are located in Norwalk, Connecticut and are used
for the practice of ophthalmology and optometry, an ambulatory surgery center,
and incidental activities such as the sale of eyeglasses and corrective lenses.
The term of the lease is three years. Under the Lease, OptiCare Eye Health
Centers pays a minimum annual rental to Cross Street Medical Building
Partnership of $427,600. In addition, OptiCare Eye Health Centers pays all
taxes, assessments, utilities and insurance related to the property being
leased. Linda Yimoyines and John Yimoyines each own an 11% interest in O.N.B.
Associates and Steven Ditman, Chief Financial Officer and a director, owns a
1.5% interest in O.N.B. Associates.
OptiCare Eye Health Centers is also the tenant under a second Lease
Agreement dated September 1, 1995 with French's Mill Associates II, L.L.P. as
landlord. The leased premises are located in Waterbury, Connecticut and are also
part of OptiCare's main headquarters. The term of the lease is fifteen years.
Pursuant to the Lease Agreement, during the first five years of the leasehold
term, OptiCare Eye Health Centers pays a minimum annual rental to French's Mill
Associates II of $54,210, subject to adjustment at the end of the first five
years and every five years thereafter. In addition, OptiCare Eye Health Centers
pays all taxes, assessments, utilities and insurance related to the property
being leased.
Consolidated Eye Care, Inc., one of our subsidiaries, is guarantor for a
$298,530 liability of Kirkland Drive Associates, an entity which, at the time
of the guarantee, was owned 50% by Prime and 50% by Drs. Barker and Harrold,
two of our officers. Kirkland Drive Associates is currently owned 100% by Drs.
Barker and Harrold. Dr. Barker is a director and officer of the company, and
Dr. Harrold is an officer of the company.
46
<PAGE>
Consolidated Eye Care, Inc. is the tenant under a Lease Agreement dated
March 1, 1997 with Drs. D. Blair Harrold and Allan L. M. Barker. The leased
premises are located in Rocky Mount, North Carolina and are used for HMO
offices. The term of the lease is five years commencing on August 1, 1997.
Under the lease, Consolidated Eye Care, Inc. pays an annual rental of $13,500
and $14,850 during the first two years and second two years respectively. In
addition, Consolidated Eye Care, Inc. pays all taxes, assessments, utilities,
insurance and for certain repairs related to the property being leased. Dr.
Barker is a director and officer of the company, and Dr. Harrold is an officer
of the company.
Consolidated Eye Care, Inc. is the tenant under a Lease Agreement dated
March 1, 1997 with Drs. Harrold and Barker. The leased premises are located in
Rocky Mount, North Carolina and are used for HMO executive offices. The term of
the lease is five years commencing on May 1, 1997. Under the lease,
Consolidated Eye Care, Inc. pays an annual rental of $42,409 and $46,448 during
the first two years and second two years respectively. In addition,
Consolidated Eye Care, Inc. pays all taxes, assessments, utilities, insurance
and for certain repairs related to the property being leased.
Consolidated Eye Care, Inc. is the tenant under a Lease Agreement dated
March 1, 1997 with Drs. Harrold and Barker. The leased premises are located in
Rocky Mount, North Carolina and are used as an operations center. The term of
the lease is five years commencing on May 1, 1997. Under the lease,
Consolidated Eye Care, Inc. pays an annual rental of $122,467 and $137,552
during the first two years and second two years respectively. In addition,
Consolidated Eye Care, Inc. pays all taxes, assessments, utilities, insurance
and for certain repairs related to the property being leased.
Consolidated Eye Care, Inc. is the tenant under a Lease Agreement dated
September 1, 1999 with Drs. Harrold and Barker. The leased premises are located
in Rocky Mount, North Carolina and are used as executive offices. The term of
the lease is five years commencing September 1, 1999. Under the lease,
Consolidated Eye Care, Inc. pays an annual rental of $40,000 during the first
year of the lease. Thereafter, the rental amount is adjusted annually in
accordance with the consumer price index. In addition, Consolidated Eye Care,
Inc. pays all taxes, assessments, utilities, insurance and for certain repairs
related to the property being leased.
Optometric Eye Care Centers, P.A., a North Carolina professional
association affiliated with the Company through a management agreement, is the
tenant under a Lease Agreement dated March 1, 1997 with Drs. Harrold and Barker.
The leased premises are located in Fayetteville, North Carolina and are used for
the practice of optometry and the sale of eye glasses and corrective lenses. The
term of the lease is five years commencing May 1, 1997. Under the lease,
Optometric Eye Care Centers, P.A. pays an annual rental of $96,000 and $100,000
during the first two years and second two years respectively. In addition,
Optometric Eye Care Centers, P.A. pays all taxes, assessments, utilities,
insurance and for certain repairs related to the property being released.
Optometric Eye Care Centers, P.A., is the tenant under a Lease Agreement
dated March 1, 1997 with Drs. Harrold and Barker. The leased premises are
located in Jacksonville, North Carolina and are used for the practice of
optometry and the sale of eye glasses and corrective lenses. The term of the
lease is four years commencing May 1, 1997. Under the lease, Optometric Eye
Care Centers, P.A. pays an annual rental of $59,752 during the first two years.
During the second two years Optometric Eye Care Centers, P.A. pays an annual
rental of $65,184 or 6% of net revenues, whichever is greater. In addition,
Optometric Eye Care Centers, P.A. pays all taxes, assessment, utilities,
insurance and for certain repairs related to the property being released.
47
<PAGE>
STOCK PURCHASE AGREEMENT AND CONSULTING AGREEMENT
Under the terms of a Stock Purchase Agreement dated as of October 15, 1997
among OptiCare Eye Health Centers and Oxford Health Plans, Inc. ("Oxford"),
Nazem OptiCare Partners, LP, Eugene W. Huang and Christopher Kaufman, as
purchasers, OptiCare Eye Health Centers sold, for an aggregate purchase price of
$6,000,017 either Class A preferred shares, or Class B preferred shares to
Oxford, Nazem, OptiCare Partners, Huang and Kaufman. In addition Oxford received
warrants to purchase Class B shares.
On October 15, 1997, OptiCare Eye Health Centers also entered into a
three-year Consulting Agreement with Mr. Fred Nazem, who until January, 2000,
was a beneficial owner of in excess of 5% of our outstanding capital stock. We
paid to Mr. Nazem a sum of $180,000 in consideration for consulting services
under that agreement, and issued to Mr. Nazem and two of his associates warrants
to purchase an aggregate of 19,911 shares of Class B preferred stock of OptiCare
Eye Health Centers. These warrants were exchanged in the merger for warrants in
the company, as described above.
Prior to the mergers, OptiCare Eye Health Centers, Oxford, Nazem OptiCare
Partners, Mr. Nazem, Mr. Huang and Mr. Kaufman were parties to a certain Amended
and Restated Stockholders Agreement (the "OptiCare Stockholders Agreement"),
dated as of October 15, 1997, that contained provisions such as restrictions on
transfers of shares, rights of first refusal, co-sale rights and provisions
relating to the election of directors. Pursuant to a Second Amended and Restated
Stockholders' Agreement entered into in connection with the mergers, the
OptiCare Stockholders Agreement was amended and restated so as to terminate most
of its provisions and to amend certain provisions relating to restrictions of
the employee/stockholders from competing with the company.
Prior to the mergers, OptiCare Eye Health Centers, Oxford, Nazem OptiCare
Partners, Mr. Huang and Mr. Kaufman were parties to a certain Registration
Rights Agreement (the "OptiCare Registration Rights Agreement"), dated as of
October 15, 1997, that provided for certain demand and piggyback registration
rights in favor of the stockholders parties thereto. The OptiCare Registration
Rights Agreement was terminated, effective as of the mergers. However, pursuant
to a Letter Agreement, dated August 9, 1999, between the company and Oxford, the
company agreed to continue the piggyback registration rights provided for in the
OptiCare Registration Rights Agreement with respect to the shares issuable upon
exercise of the warrants held by Oxford.
PARTICIPATING PROVIDER AGREEMENT
OptiCare Eye Health Centers is also a party to a participating provider
agreement with Oxford Health Plans, Inc., a holder of in excess of five percent
of our outstanding capital stock, under which OptiCare Eye Health Centers
provides medical services to the insured members of Oxford's insurance plans and
receives fees from Oxford for these services. This agreement may be terminated
by either party upon 90 days written notice.
SETTLEMENT WITH OPTOMETRIC EYE CARE CENTER, P.A.
In 1996, Drs. Allan L.M. Barker and D. Blair Harrold, majority
shareholders in Optometric Eye Care Center, P.A. and Consolidated Eye Care,
Inc., sold Consolidated to PrimeVision Health. At the same time, Drs. Barker
and Harrold became executive officers and directors of PrimeVision Health.
Consolidated and
48
<PAGE>
Optometric Eye Care had previously entered an administrative services agreement
which continued after the sale of Consolidated to PrimeVision Health. Among
other factors, the impending mergers of PrimeVision Health and OptiCare Eye
Health Centers prompted Drs. Barker and Harrold to begin proceedings to
terminate the administrative services agreement between Consolidated (a
subsidiary of PrimeVision Health at the time) and Optometric Eye Care and to
submit their resignations from PrimeVision Health forthwith. In conjunction with
these actions, Drs. Barker and Harrold submitted a Request for Declaratory
Ruling from the North Carolina Board of Examiners in Optometry and instituted a
lawsuit in North Carolina Superior Court, asking the court to grant a Temporary
Restraining Order, which was issued, enjoining, among other things, the mergers.
On April 9,1999, Drs. Harrold and Barker entered into a settlement
agreement among Optometric Eye Care, PrimeVision Health, Consolidated and the
other parties to the lawsuit, and the transactions called for in the settlement
agreement closed on August 13, 1999, at the same time as the mergers of
PrimeVision Health and OptiCare Eye Health Centers with the company. Following
are the material terms of this settlement agreement:
(1) Consolidated and Optometric Eye Care entered into a new 40-year
administrative services agreement with an initial 15 year term and five
automatic renewals for five years each. See above "Optometric Eye Care
Centers Professional Services and Support Agreement."
(2) $2.5 million was paid to Drs. Harrold and Barker.
(3) PrimeVision Health issued additional shares of its common stock to Drs.
Barker and Harrold such that, together with shares previously owned, will
constitute 32% of PrimeVision Health's total common stock calculated on a
primary basis immediately prior to the mergers. This share grant satisfied
a note receivable in the amount of $364,896 plus accrued interest held by
Consolidated Eye Care and all other alleged claims.
(4) Drs. Harrold and Barker entered into new employment agreements with the
company that became effective on August 13, 1999, at the same time as the
closing of the mergers.
(5) In the event of the company's subsequent insolvency or bankruptcy, Drs.
Barker and Harrold will have the right to purchase six retail business
operations in North Carolina for three times the earnings before interest,
taxes, depreciation and amortization excluding the effect of all
extraordinary items and non-recurring charges. This right will be available
to Drs. Barker and Harrold only until such time as the aggregate market
value of their common stock is less than $7 million.
(6) Dr. Barker was named as one of our directors.
ARRANGEMENTS WITH MARLIN CAPITAL, L.P.
Pursuant to the terms of a stock purchase agreement, dated as of June 4,
1998, between PrimeVision Health and Marlin Capital, L.P., PrimeVision Health
sold to Marlin Capital (i) 8,000 shares of Prime Vision Health's Class A
Preferred Stock and (ii) warrants to purchase 1,333,333 shares of PrimeVision
Health's common stock for an aggregate purchase price of $8,000,000. Mr. Martin
E. Franklin, who is a current Director of the company, is the Chairman, Chief
Executive Officer and principal stockholder of Marlin Holdings, Inc., which is
the general partner of Marlin Capital, L.P., a private investment partnership
since
49
<PAGE>
October 1996. Mr. Ian G.H. Ashken, who is a current Director of the company, is
the Vice Chairman of Marlin Holdings, Inc.
In connection with the mergers, the 8,000 shares of Prime Vision Health
Class A Preferred Stock and warrants owned by Marlin Capital were exchanged as
follows:
o 2,000 shares of PrimeVision Health preferred stock and all the warrants (as
adjusted) were exchanged for 2,033,333 shares of PrimeVision Health common
stock, which in turn were exchanged in the mergers for 638,059 shares of
our common stock.
o 2,000 shares of PrimeVision Health preferred stock were exchanged for a
promissory note issued by us in the principal amount of $2,000,000, having
a three year term and bearing interest at the annual rate of 8%. This
promissory note was cancelled in January, 2000 upon the exchange of the
note for 571,428 registered shares of our common stock in connection with
our offering of an aggregate of 3,571,428 shares of common stock as a price
of $3.50 per share. See "Business - Recent Developments."
o 4,000 shares of PrimeVision Health preferred stock were exchanged for a
convertible promissory note issued by us in the principal amount of
$4,000,000, having a three year term, and bearing interest at the annual
rate of 9% beginning on February 14, 2000. The note was convertible into
our 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 our common stock in
the 20 trading days prior to conversion. This note was paid in full in
February, 2000 with a portion of the proceeds of a common stock offering.
See "Business - Recent Developments"
STOCK OPTIONS
In connection with the mergers, options to acquire shares of common stock
or capital stock of OptiCare Eye Health Centers and PrimeVision Health, as the
case may be, were exchanged by directors and officers for options under the
company's Performance Stock Program. See "ITEM 11 -- Executive Compensation."
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. FINANCIAL STATEMENTS
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Required schedules have been omitted because they are either not applicable
or the required information has been disclosed in the consolidated financial
statements or notes thereto.
3. EXHIBITS:
Exhibit Description
- ------- -----------
3.1 Certificate of Incorporation of Registrant, incorporated by reference
to Exhibit 3.1 to the Registrant's Annual Report on Form 10-KSB filed
February 3, 1995.
3.2 Certificate of Amendment of the Certificate of Incorporation, dated as
of August 13, 1999, as filed with the Delaware Secretary of State on
August 13, 1999, incorporated by reference to Exhibit 3.1 to
Registrant's report on Form 8-K filed on August 30, 1999.
3.3 Amended and Restated By-laws of Registrant adopted March 27, 2000.
3.4 Certificate of Designation with respect to the Registrant's Series A
Convertible Preferred Stock, as filed with the Delaware Secretary of
State on August 13, 1999, incorporated by reference to Exhibit 3.2 to
Registrant's report on Form 8-K filed on August 30, 1999.
3.5 Warrant agreement dated as of August 13, 1999 between the Registrant
and Bank Austria Creditanstalt Corporate Finance, Inc., incorporated
by reference to Exhibit 3.3 to the Registrant's report on Form 8-K
filed on August 30, 1999.
4.1 Performance Stock Program, incorporated herein by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-4,
registration no. 333-78501, first filed on May 14, 1999, as amended
(the "Registration Statement 333-78501).+
4.2 Amended and Restated 1999 Employee Stock Purchase Plan. +
4.3 2000 Professional Employee Stock Purchase Plan. +
10.1 Compromise and Settlement Agreement dated May 7, 1996, by and between
Saratoga Resources, Inc. a Delaware corporation, Saratoga Resources,
Inc., a Texas corporation, Lobo Operating, Inc., a Texas corporation,
Lobo Energy, Inc., a Texas corporation, Thomas F. Cooke, Joseph T.
Kaminski, Randall F. Dryer, and Internationale Nederlanden (U.S.)
Capital Corporation, incorporated by reference
51
<PAGE>
to Exhibit 1 to the Registrant's Report on Form 8-K dated May 7, 1996.
10.2 Purchase and Sale Agreement dated May 7, 1996, by and between
Internationale Nederlanden (U.S.) Capital Corporation and Prime Energy
Corporation, incorporated by reference to Exhibit 2 to our Report on
Form 8-K dated May 7, 1996.
10.3 Assignment and Bill of Sale dated May 7, 1996, by and between Saratoga
Resources, Inc., a Delaware corporation and Prime Energy Corporation,
incorporated by reference to Exhibit 3 to our Report on Form 8-K dated
May 7, 1996.
10.4 Settlement Agreement and Full and Final Release dated March 10, 1997,
by and between Saratoga Resources, Inc., a Delaware corporation,
Thomas F. Cooke, Randall F. Dryer, Dryer, Ltd., a Texas Family
Partnership and Joseph T. Kaminski, incorporated by reference to
Exhibit 1 to our Report on Form 8-K dated March 12, 1997.
10.5 Purchase and Sale agreement dated effective November 12, 1998, between
Saratoga Holdings I, Inc. and The Premium Group, Incorporated by
reference to Exhibit 10.1 to the Registration Statement on Form SB-2
of Saratoga Holdings I, Inc. filed with the SEC on December 1, 1998.
10.6 Service Agreement dated as of November 12, 1998, between Saratoga
Holdings and Premium Recoveries, Inc. Incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form SB-2 of Saratoga
Holdings I, Inc. filed on December 1, 1998.
10.7 Settlement agreement dated as of April 9, 1999, among PrimeVision
Health, Inc., Dr. Allan L.M. Barker, Dr. D. Blair Harrold, Optometric
Eye Care Center, P.A., Steven B. Waite, Bank Austria AG, and Bank
Austria Corporate Finance, Inc., incorporated by reference to Exhibit
10.8 to the Registration Statement 333-78501
10.8 Vision care capitation agreement between OptiCare Eye Health Centers
and Blue Cross & Blue Shield of Connecticut, Inc. (and its affiliates)
dated October 23, 1999, incorporated by reference to Exhibit 10.9 to
the Registration Statement 333-78501.
10.9 Eye care services agreement between OptiCare Eye Health Centers and
Anthem Health Plans, Inc. (d/b/a Anthem Blue Cross and Blue Shield of
Connecticut), effective November 1, 1998, incorporated by reference to
Exhibit 10.10 to the Registration Statement 333-78501.
10.10 Contracting provider services agreement dated April 26, 1996, and
amendment thereto dated as of January 1, 1999, between Blue Cross and
Blue Shield of Connecticut, Inc., and OptiCare Eye Health Centers ,
incorporated herein by reference to Exhibit 10.11 to the Registration
Statement 333-78501.
10.11 Form of employment agreement between the Registrant and Dean J.
Yimoyines, M.D., effective August 13, 1999, incorporated herein by
reference to Exhibit 10.12 to the Registration Statement 333-78501.+
10.12 Form of employment agreement between the Registrant and Steven L.
Ditman, effective August 13, 1999, incorporated herein by reference to
Exhibit 10.13 to the Registration Statement 333-78501.+
10.13 Form of employment agreement between the Registrant and Dr. Allan L.M.
Barker, effective August 13, 1999, , incorporated herein by reference
to Exhibit 10.14 to the Registration Statement 333-78501.+
10.14 Form of employment agreement between the Registrant and Dr. D. Blair
Harrold, effective August 13, 1999, incorporated herein by reference
to Exhibit 10.15 to the
52
<PAGE>
Registration Statement 333-78501.+
10.15 Employment Agreement between the Registrant and Samuel B. Petteway
dated August 9, 1999 incorporated by reference to Exhibit 10.11 to the
Registrant's report on Form 10-Q filed on November 15, 1999.+
10.16 Lease dated September 22, 1987 and lease extension agreement dated
December 12, 1997 by and between Cross Street Medical Building
partnership, as landlord, and Ophthalmic Physicians and Surgeons,
P.C., as tenant, for premises located at 40 Cross Street, Norwalk,
Connecticut incorporated herein by reference to Exhibit 10.16 to the
Registration Statement 333-78501.
10.17 Lease agreement dated September 1, 1995 by and between French's Mill
Associates, as landlord, and OptiCare Eye Health Centers as tenant,
for premises located at 87 Grandview Avenue, Waterbury, Connecticut
incorporated herein by reference to Exhibit 10.17 to the Registration
Statement 333-78501.
10.18 Lease agreement dated September 30, 1997 by and between French's Mill
Associates II, LLP, as landlord, and OptiCare Eye Health Centers Eye
Health Center P.C., as tenant, for premises located at 160 Robbins
Street, Waterbury, Connecticut (upper level), incorporated herein by
reference to Exhibit 10.18 to the Registration Statement 333-78501.
10.19 Lease agreement dated September 1, 1995 and amendment to lease dated
September 30, 1997 by and between French's Mill Associates II, LLP, as
landlord, and OptiCare Eye Health Centers Eye Health center P.C., as
tenant, for premises located at 160 Robbins Street, Waterbury,
Connecticut (lower level), incorporated herein by reference to Exhibit
10.19 to the Registration Statement 333-78501.
10.20 Lease agreement dated September 1, 1995 between O.C. Realty Associates
Limited Partnership, as landlord, and OptiCare Eye Health Centers, as
tenant, for premises located at 54 Park Lane, New Milford,
Connecticut, incorporated herein by reference to Exhibit 10.20 to the
Registration Statement 333-78501.
10.21 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, incorporated by reference to Exhibit 10.12 to the
Registrant's report on Form 10-Q filed on November 15, 1999.
10.22 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,
incorporated by reference to Exhibit 10.13 to the Registrant's report
on Form 10-Q filed on November 15, 1999.
10.23 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, incorporated by reference to Exhibit 10.14 to the
Registrant's report on Form 10-Q filed on November 15, 1999.
10.24 Form of health services organization agreement between PrimeVision
Health, Inc. and eye care providers, incorporated herein by reference
to Exhibit 10.21 to the Registration Statement 333-78501.
10.25 Professional services and support agreement dated December 1, 1995
between OptiCare Eye Health Centers and OptiCare P.C., a Connecticut
professional corporation, incorporated herein by reference to Exhibit
10.22 to the Registration Statement 333-78501.
10.26 Voting Agreement, dated as of July 14, 1999, between Thomas Cooke
53
<PAGE>
and PrimeVision Health, Inc., incorporated herein by reference to
Exhibit 10.23 to the Registration Statement 333-78501.
10.27 Amended and Restated Loan and Security Agreement, dated as of August
13, 1999, among Consolidated Eye Care, Inc., OptiCare Eye Health
Centers, and PrimeVision Health, Inc. as borrowers, the Registrant as
the Parent, the lenders named therein (the "Lenders"), Bank Austria,
AG (the "LC Issuer"), 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
to the Registrant's report on Form 8-K filed on August 30, 1999.
10.28 Guaranty dated as of August 13, 1999, among the Registrant, OptiCare
Eye Health Centers, PrimeVision Health, Inc., Consolidated Eye Care,
Inc. and each of the other subsidiaries and affiliates of the
Registrant listed on the signature pages thereto, in favor of the
Lenders, the LC Issuer and the Agent, incorporated by reference to
Exhibit 10.2 to the Registrant's report on Form 8-K filed on August
30, 1999.
10.29 Security Agreement dated as of August 13, 1999, among the Registrant
and the other parties listed on the signature page thereto in favor of
the Agent for the benefit of the Lenders and the LC Issuer,
incorporated by reference to Exhibit 10.3 to the Registrant's report
on Form 8-K filed on August 30, 1999.
10.30 Conditional Assignment and Trademark Security Agreement dated as of
August 13, 1999, between the Registrant and the Agent for the benefit
of the Lenders and the LC Issuer, incorporated by reference to Exhibit
10.4 to the Registrant's report on Form 8-K filed on August 30, 1999.
10.31 Pledge and Security Agreement, dated as of August 13, 1999, among each
of the Registrant, OptiCare Eye Health Centers, 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 to the Registrant's
report on Form 8-K filed on August 30, 1999.
10.32 Assignment of Notes and Security Agreement, dated as of August 13,
1999, between PrimeVision Health, Inc. and the Agent, incorporated by
reference to Exhibit 10.6 to the Registrant's report on Form 8-K filed
on August 30, 1999.
10.33 Agreement and Plan of Merger, dated as of April 12, 1999, among the
Registrant (then known as "Saratoga Resources, Inc."), OptiCare
Shellco Merger Corporation, Prime Shellco Merger Corporation,
OptiCare Eye Health Centers, Inc., a Connecticut corporation, and
PrimeVision Health, Inc., incorporated herein by reference to Exhibit
2 to the Registration Statement 333-78501.
10.34 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., incorporated by reference to Exhibit 10.8 to the
Registrant's report on Form 10-Q filed on November 15, 1999.
10.35 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., incorporated by reference to Exhibit 10.9 to the
Registrant's report on Form 10-Q filed on November 15, 1999.
10.36 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), incorporated by
reference to Exhibit 10.10 to the Registrant's report on Form 10-Q
filed on November 15, 1999.
54
<PAGE>
10.37 Registration Rights Agreement dated as of August 13, 1999 between
Registrant and Bank Austria Creditanstalt Corporate Finance, Inc.
10.38 Lease dated March 1, 1997, between the Registrant as tenant and Drs.
Blair Harrold and Allan L.M. Barker as landlord, covering premises
known as 579 Cross Creek Mall, Fayetteville, N.C., incorporated by
reference to Exhibit 10.39 to the Company's Registration Statement on
Form S-1, registration no. 333-93043, first filed on December 17,
1999, as amended ("Registration Statement 333-93043").
10.39 Lease dated March 1, 1997, between the Registrant as tenant and
Optometric Eye Care Center, P.A., as landlord, covering premises at
315-A Western Boulevard, Jacksonville, N.C., incorporated by
reference to Exhibit 10.40 to the Registration Statement 333-93043.
10.40 Employment agreement between the Registrant as employer and Gordon A.
Bishop, dated August, 13, 1999, incorporated by reference to Exhibit
10.41 to the Registration Statement 333-93043.+
10.41 Lease dated September 1, 1999, between the Registrant as tenant and
Harrold-Barker Realty, as landlord, covering premises located in Rocky
Mount, N.C., incorporated by reference to Exhibit 10.42 to the
Registration Statement 333-93043.
10.42 Professional Services and Support Agreement between the Registrant
and Optometric Eye Care Centers, P.A., incorporated by reference to
Exhibit 10.43 to the Registration Statement 333-93043.
10.43 Agreement and Plan of Merger and Reorganization among Vision
Twenty-One, Inc., OC Acquisition Corp. and OptiCare Health Systems,
Inc. dated as February 10, 2000.
16.1 Letter of Hein + Associates LLP regarding Change in Certifying
Accountants, incorporated by reference to Exhibit 16 of the Amendment
No. 1 filed April 6, 1999, of Registrant"s Current Report on Form 8-K
dated March 29, 1999.
16.2 Letter of Ernst & Young LLP regarding Change in Certifying
Accountants, incorporated by reference to Exhibit 16 of the Amendment
No. 2 filed September 17, 1999 of Registrant's Current Report on Form
8-K dated August 13, 1999.
21 List of Subsidiaries of the Registrant, incorporated by reference to
Exhibit 21 to the Registration Statement 333-93043.
27 Financial Data Schedule (for EDGAR Filing only).
+ Management or compensatory plan.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended
December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
55
<PAGE>
There were no reports on Form 8-K filed during the three months ended
December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OPTICARE HEALTH SYSTEMS, INC.
Date: March 29, 2000 By: /s/ Dean J. Yimoyines
_______________________________
Dean J. Yimoyines, M.D.,
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated
Signature Title Date
- --------- -------------- ----
/s/ Dean J. Yimoyines
- ----------------------- Director, Chairman of the Board, March 27, 2000
Dean J. Yimoyines, M.D. Chief and President (Principal
Executive Officer
/s/ Steven L. Ditman
- ---------------------- Director, Executive Vice President March 28, 2000
Steven L. Ditman and Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ Martin E. Franklin
- ------------------- Director March 27, 2000
Martin E. Franklin
/s/ Ian G.H. Ashken
- ------------------- Director March 27, 2000
Ian G.H. Ashken
/s/ Allan L.M. Barker
- ------------------- Director March 27, 2000
Allan L.M. Barker
/s/ John F. Croweak
- ------------------- Director March 27, 2000
John F. Croweak
/s/ Carl J. Schramm
- ------------------- Director March 27, 2000
Carl J. Schramm
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Stockholders'
Equity (Deficit) for the years ended
December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
OptiCare Health Systems, Inc.
Waterbury, Connecticut
We have audited the accompanying consolidated balance sheet of OptiCare Health
Systems, Inc. and subsidiaries (the "Company") as of December 31, 1999, and the
related consolidated statements of operations, cash flows and stockholders'
equity for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of OptiCare Health Systems, Inc.
and subsidiaries as of December 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Hartford, Connecticut
March 24, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Prime Vision Health, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Prime
Vision Health, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, shareholders' (deficit) equity
and cash flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Prime Vision Health, Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Prime Vision Health, Inc. and subsidiaries will continue as a going concern.
During 1998 and 1997 the Company incurred operating losses and had a working
capital deficiency at December 31, 1998. In addition, as more fully described in
Note 9, the Company was not in compliance with certain covenants of its loan
agreement with a bank at December 31, 1998. These conditions raised substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
May 7, 1999
Raleigh, NC
F-3
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,921 $ 5,956
Accounts receivable, net 10,557 4,571
Inventories 3,029 1,360
Net current assets of discontinued operations - 5,582
Income tax receivable 755 1,089
Deferred income taxes, current 2,579 1,499
Other current assets 1,504 180
------------- ------------
TOTAL CURRENT ASSETS 21,345 20,237
Property and equipment, net 9,679 4,510
Deferred debt issuance costs, net 1,236 546
Intangible assets, net 32,443 810
Deferred income taxes, non-current 951 123
Notes receivable from related parties, less current portion 94 175
Other assets 992 155
------------- ------------
TOTAL ASSETS $66,740 $ 26,556
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $7,619 $ 3,926
Claims payable 3,048 440
Accrued salaries and related expenses 2,171 3,100
Accrued expenses 2,730 842
Interest payable 310 1,394
Current portion of long-term debt 3,459 39,784
Current portion of capital lease obligations 110 92
Deferred income tax liability 397 1,620
Other current liabilities 810 -
------------- ------------
TOTAL CURRENT LIABILITIES 20,654 51,198
Long-term debt, less current portion 39,689 192
Capital lease obligations, less current portion 193 202
Other liabilities 930 454
------------- ------------
TOTAL LIABILITIES 61,466 52,046
COMMITMENTS AND CONTINGENCIES (Notes 10 and 16)
Manditorily Redeemable preferred stock, $0.01 par value, 5,000,000 shares
authorized, 8,000 shares issued and outstanding at December 31, 1998 - 9,200
STOCKHOLDERS' EQUITY (DEFICIT):
Series A Convertible Preferred Stock, $.001 par value, 550,000 shares
Authorized; 418,803 and 0 shares issued and outstanding at
December 31, 1999 and 1998, respectively 1 -
Common Stock, $0.001 par value; 50,000,000 shares authorized; 8,972,128
and 2,325,125 shares outstanding at December 31, 1999 and 1998 respectively 9 2
Additional paid-in-capital 47,784 5,862
Accumulated deficit (42,520) (40,554)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 5,274 (34,690)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $66,740 $26,556
============= ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
NET REVENUES:
Laser correction and professional services $ 4,061 $ - $ -
Managed care services 24,425 14,902 7,416
Other integrated services 66,147 49,710 50,930
--------------- ------------- -------------
Total net revenues 94,633 64,612 58,346
--------------- ------------- -------------
OPERATING EXPENSES:
Cost of product sales 41,182 35,237 37,010
Medical claims expense 19,545 10,994 4,993
Salaries, wages and benefits 20,073 9,275 9,130
Selling, general and administrative 7,932 5,996 5,196
Depreciation 1,408 1,133 1,036
Amortization 605 284 184
Interest 3,248 4,498 3,866
--------------- ------------- -------------
Total operating expenses 93,993 67,417 61,415
--------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 640 (2,805) (3,069)
Income tax expense (benefit) 289 434 (1,035)
--------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 351 (3,239) (2,034)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of tax -- (11,287) 629
(Loss) from disposal of discontinued operations, net of tax (2,317) (23,564) --
--------------- ------------- -------------
NET (LOSS) $ (1,966) $ (38,090) $ (1,405)
=============== ============= =============
LOSS PER COMMON SHARE: (Note 14)
Income (loss) from continuing operations:
Basic and diluted $ (0.05) $ (2.54) $ (1.10)
=============== ============= =============
Net income (loss):
Basic and diluted $ (0.54) $ (17.99) $ (0.76)
=============== ============= =============
Weighted average common shares outstanding:
Basic and diluted 4,776,501 2,256,461 1,855,931
=============== ============= =============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITES:
Net loss $(1,966) $ (38,090) $(1,405)
Less: net income (loss) from discontinued operations (2,317) (34,851) 629
----------- ------------- -------------
Net income (loss) from continuing operations 351 (3,239) (2,034)
Adjustments to reconcile net income (loss) from continuing operations to
net cash (used in) provided by operating activities:
Depreciation 1,408 1,133 1,036
Amortization 605 284 184
Changes in operating assets and liabilities (excluding the effects of
acquired businesses);
Accounts receivable 83 (480) (350)
Inventories 222 913 611
Other current assets 1,975 (1,808) (645)
Other assets (1,350) 230 (49)
Accounts payable and accrued expenses (962) 3,276 4,357
Other current liabilities (474) - -
Other liabilities (462) - -
Cash provided by (used in) discontinued operations (1,749) 1,899 (26,589)
----------- ------------- -------------
Net cash provided by (used in) operating activities (353) 2,208 (23,479)
----------- ------------- -------------
INVESTING ACTIVITES:
Purchases of equipment (1,871) (608) (1,851)
Cash acquired in mergers 640 - -
Cash received from discontinued operations disposals 5,685 - -
Cash used for acquisitions and related expenses (5,637) - -
----------- ------------- -------------
Net cash (used in) investing activities (1,183) (608) (1,851)
----------- ------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term bank debt 32,998 17 28,809
Proceeds from issuance of mandatorily redeemable preferred stock - 8,000 -
Payments on long-term debt (34,173) (6,000) -
Payment of financing costs (185) - (300)
Payments on capital lease obligations (139) (139) (95)
----------- ------------- -------------
Net cash provided by (used in) financing activities (1,499) 1,878 28,414
----------- ------------- -------------
Increase (decrease) in cash and cash equivalents (3,035) 3,478 3,084
Cash and cash equivalents at beginning of year 5,956 2,478 (606)
----------- ------------- -------------
Cash and cash equivalents at end of year $2,921 $5,956 $ 2,478
=========== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $4,332 $3,987 $3,843
Cash paid for income taxes $1,496 $2,155 $ 84
Assets of discontinued operations assumed by bank as a reduction of debt $7,818 - -
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PREFERRED STOCK COMMON STOCK PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------------------------ --------------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,966,771 $ 40 994,159 $1 $ 4,409 $ 234 $ 4,684
Issuance of shares of common
stock in exchange for
preferred stock (3,966,771) (40) 502,080 (10) (50)
Purchase of minority interest 1 1
Issuance of stock warrant 115 115
Administrative Services
Agreement renegotiation (969) (969)
Issuance of common stock 674,087 1 2,169 2,170
Net loss for 1997 (1,405) (1,405)
------------ ------- ----------- ------ ----------- -------------- ------------
Balance at December 31, 1997 -- -- 2,170,326 2 5,715 (1,171) 4,546
Issuance of stock warrant
in connection with the
issuance of redeemable
preferred stock 1,293 1,293
Accretion of preferred stock (1,293) (1,293)
Preferred stock dividends (1,200) (1,200)
Issuance of common stock 154,799 54 54
Net loss for 1998 (38,090) (38,090)
------------ ------- ----------- ------ ----------- -------------- ------------
Balance at December 31, 1998 -- -- 2,325,125 2 5,862 (40,554) (34,690)
Preferred stock dividend (600) (600)
Exercise of warrants 69,124
Issuance of common stock to
bank as financing fees 156,900 960 960
Issuance of warrants to bank
as financing fees 179 179
Issuance of preferred stock
to bank to reduce debt 418,803 1 2,449 2,450
Exchange of redeemable
Preferred stock 638,060 1 3,799 3,800
New Administrative
Services Agreement 873,903 1 5,352 5,353
Issuance of common stock 324,838 1,998 1,998
Saratoga merger 225,000 130 130
OptiCare merger 4,249,675 5 26,866 26,871
Fractional shares (497) (11) (11)
Cohen Systems, Inc. purchase 110,000 800 800
Net loss for 1999 (1,966) (1,966)
------------ ------- ----------- ------ ----------- -------------- ------------
Balance at December 31, 1999 418,803 $ 1 8,972,128 $ 9 $47,784 $(42,520) $ 5,274
============ ======= =========== ====== =========== ============== ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION
OptiCare Health Systems, Inc. and subsidiaries (the "Company") is an
integrated eye care services company focused on providing laser correction,
managed care and professional eye care services. The Company currently owns,
operates and develops laser and ambulatory surgery centers and provides systems,
including internet-based software solutions, to eye care professionals. The
Company also provides managed eye care services to health plans and operates
integrated eye health centers, retail optical stores and a buying group program.
The Company's current form is the result of two mergers (collectively the
"Merger") completed on August 13, 1999 by and among Saratoga Resources, Inc.
("Saratoga"), a Delaware corporation, PrimeVision Health, Inc. ("Prime") and
OptiCare Eye Health Centers, Inc. ("OptiCare"). 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 or a total of 4,249,675
shares.
In connection with the Merger, the Company's name changed 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
not material to the consolidated financial statements. Financial results for
periods prior to September 1, 1999 are based solely upon the results reported by
Prime and its subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and OptiCare P.C. and Optometric Eye Care Centers
P.A. All intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers investments purchased with an original maturity of
three months or less when purchased to be cash equivalents.
RECEIVABLES
Receivables are stated net of allowances for doubtful accounts. Gross
receivables are stated net of contractual allowances and insurance
disallowances.
F-8
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
INVENTORIES
Inventories primarily consist of eyeglass frames, lenses, sunglasses,
contact lenses and surgical supplies. Inventories are valued at the lower of
cost or market, determined on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Leasehold improvements are
being amortized over the term of the lease or the life of the improvement,
whichever is shorter. Depreciation and amortization are provided primarily using
the straight-line method over the estimated useful lives of the respective
assets as follows:
CLASSIFICATION ESTIMATED USEFUL LIFE
- -------------- ---------------------
Furniture, fixtures and equipment 5 - 7 years
Leasehold improvements 3 - 10 years
Computer hardware and software 3 - 5 years
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are being amortized on the interest method
over the term of the related debt and such amortization is included in interest
expense.
INTANGIBLE ASSETS
The Company uses the straight-line method to amortize intangible assets
over their estimated useful lives which range from 15 to 25 years. The Company's
management periodically evaluates the carrying value of its intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Recoverability is based on
estimated future undiscounted cash flows from the use and ultimate disposition
of the asset.
LASER CORRECTION AND PROFESSIONAL SERVICES REVENUE
The Company owns and operates laser vision correction and amubulatory
surgery centers and sells a broad range of other management services to eye care
professionals. Revenue is recorded when the service is rendered at contractually
agreed upon rates.
MANAGED CARE REVENUE
The Company provides vision care services, through its managed vision care
business, as a preferred provider to HMOs, PPOs, third party administrators and
insurance indemnity programs. The contractual arrangements with these entities
operate under capitated programs, exclusive and non-exclusive fee-for-services,
preferred provider arrangements and other exclusive arrangements. Capitation
payments are accrued when they are due under the related contracts. Revenue from
non-capitated services is recognized when the services are provided and the
Company's customers are obligated to pay for such services.
F-9
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
OTHER INTEGRATED SERVICES REVENUE
A portion of the Company's ophthalmic and optometric eye care revenues are
reimbursements received from Medicare and other governmental programs and
insurance companies. The Company has agreements with third-party payors that
provide for payments to the Company at amounts different from its established
rates. Revenue is reported at the estimated net realizable amounts from
patients, third-party payors, and others for services rendered. The Company
recognizes revenue on product sales at the time of delivery to the customer.
MEDICAL CLAIMS EXPENSE
Claims expense is recorded as provider services are rendered and
includes an estimate for claims incurred but not reported.
INSURANCE OPERATIONS
The Company's managed vision care business includes a wholly-owned
subsidiary which is a licensed single service HMO in Texas (the "Texas HMO").
The Texas HMO is subject to regulation and supervision by the Texas Department
of Insurance, which has broad administrative powers relating to standards of
solvency, minimum capital and surplus requirements, maintenance of required
reserves, payments of dividends, statutory accounting and reporting practices,
and other financial and operational matters. The Texas Department of Insurance
requires that stipulated amounts of paid-in-capital and surplus be maintained at
all times. Dividends generally are limited to the lesser of 10% of
statutory-basis capital and surplus or net income of the preceding year
excluding realized capital gains. At December 31, 1999, the amount of restricted
stockholders' equity was $500.
Under the Company's agreement with the Texas Department of Insurance,
the Company was required to pledge investments of $500 at December 31, 1999.
Reserves for estimated insurance losses are determined on a case by case
basis for reported claims, and on estimates based on company experience for loss
adjustment expenses and incurred but not reported claims. These liabilities give
effect to trends in claims severity and other factors which may vary as the
losses are ultimately settled. The Company's management believes that the
estimates of the reserves for losses and loss adjustment expenses are
reasonable; however, there is considerable variability inherent in the reserve
estimates. These estimates are continually reviewed and, as adjustments to these
liabilities become necessary, such adjustments are reflected in current
operations of the period of the adjustment.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires an asset and liability method of accounting for deferred income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis using enacted tax rates expected to
apply to taxable income in the years the temporary differences are expected to
reverse.
F-10
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to account for stock-based compensation using the instrinsic
value method prescribed in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations, and provide the pro forma disclosure. Accordingly, compensation
cost for the stock options is measured as the excess, if any, of the fair value
of the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires the disclosure of fair value information for certain assets and
liabilities, whether or not recorded in the balance sheet, for which it is
practicable to estimate that value. The Company has the following financial
instruments: cash and cash equivalents, accounts receivable, accounts payable,
accrued liabilities and long-term debt. The Company considers the carrying
amount of these items to approximate their fair values because of the short
period of time between the origination of such instruments and their expected
realization or their current market rate of interest.
CONCENTRATIONS OF CREDIT RISK
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company records receivables from patients and third party payors related to eye
health services rendered. The Company does not believe that there are any
substantial credit risks associated with receivables due from governmental
agencies and any concentration of credit risk from other third party payors is
limited by the number of patients and payors. The Company does not believe that
there are any substantial credit risks associated with other receivables due
from buying group members or other customers.
ESTIMATES
In preparing financial statements, management is required to make estimates
and assumptions, particularly in determining the adequacy of the allowance for
doubtful accounts, insurance disallowances and managed care claims accrual, that
affect the reported amounts of assets and liabilities as of the balance sheet
date and results of operations for the year. Actual results could differ from
those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified in order to conform to
the current year presentation.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, which the Company is required to adopt effective January
1, 2001. SFAS No. 133 will require the Company to record all derivatives on the
balance sheet at fair value. The
F-11
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
Company believes that such adoption will not have a material effect on its
consolidated results of operations or financial position.
3. MERGERS
OPTICARE
The OptiCare merger, completed on August 13, 1999, was accounted for under
the purchase method of accounting, whereby the purchase price has been allocated
to estimated fair values of the assets acquired and liabilities assumed. Fair
values were based on valuations and other studies. The excess of the aggregate
purchase price (including expenses) of approximately $29,100 over the estimated
fair value of the net assets acquired was approximately $20,700. Of this excess,
approximately, $18,500 has been recorded as goodwill and is being amortized on
a straight-line basis over 25 years and approximately $2,200 has been used to
eliminate the valuation allowance related to Prime's deferred tax assets. In
addition, the Company recorded an intangible asset of approximately $7,123 in
connection with the separate acquisition of a new administrative services
agreement that is being amortized over 25 years.
COHEN SYSTEMS
On October 1, 1999 the Company purchased Cohen Systems, Inc. (the "Cohen
Acquisition"), a software systems provider specializing in point of sale and
internet-based solutions for optical retail and optical manufacturing
laboratories. The total purchase price of $1,550 was comprised of $750 in cash
and notes payable and 110,000 shares of common stock valued at approximately
$800. The Cohen Acquisition was accounted for under the purchase method of
accounting, whereby the purchase cost has been allocated to the fair value of
the assets acquired and liabilities assumed with the excess identified as
goodwill. Fair values were based on valuations and other studies. The goodwill
resulting from this transaction was approximately $1,200 and is being amortized
on a straight-line basis over 25 years. The results of operations of Cohen
Systems, Inc. are included in the consolidated financial statements from the
purchase date.
The following is a summary of the unaudited pro forma results of operations
of the Company as if the Mergers and Cohen Acquisition had closed effective
January 1, of the respective periods below.
YEAR ENDED DECEMBER 31,
1999 1998
-------------- --------------
Net Revenues $ 129,624 $105,653
Income (loss) from continuing operations (1,359) (3,881)
Net income (loss) (3,676) (38,732)
Income (loss) per common share from continuing operations:
Basic and diluted $(0.15) $(0.43)
Net income (loss) per common share:
Basic and diluted $(0.41) $(4.32)
The unaudited pro forma information presented above is for informational
purposes only and is not necessarily 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.
F-12
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
4. DISCONTINUED OPERATIONS
On December 15, 1998, in recognition of significant losses and the fact
that the physician's practice management business model as operated by the
Company had been largely unsuccessful, the Company's Board of Directors decided
to reorganize and dispose of its ophthalmology operations and recorded an
estimated loss on disposal of $23,564 in 1998. 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 of $2,317 net of tax of
$212. As of December 31, 1999 the disposal of these operations was substantially
complete.
Summarized information on the discontinued ophthalmology segment follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net revenues - $ 69,442 $ 54,555
============== ============== ==============
Income (loss) from discontinued operations before tax - (17,884) 1,041
Income tax expense (benefit) - (6,597) 412
-------------- -------------- --------------
Income (loss) from discontinued operations - (11,287) 629
Income (loss) on disposal of discontinued operations $ (2,317) (23,564) -
-------------- -------------- --------------
Total income (loss) from discontinued operations $ (2,317) $(34,851) $ 629
============== ============== ==============
Income (loss) per share from discontinued operations $ (0.49) $ (15.45) $ 0.34
============== ============== ==============
</TABLE>
F-13
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
5. SEGMENT INFORMATION
The Company currently manages the operations of the business through three
operating segments: (1) Laser Correction and Professional Services (2)
Managed Care Services and (3) Other Integrated Services.
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
years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------- --------------- -------------
<S> <C> <C> <C>
Revenues:
Laser correction and professional services $ 4,061 $ - $ -
Managed care services 25,150 14,902 7,416
Other integrated services 78,227 68,949 67,065
-------------- --------------- -------------
Segment totals 107,438 83,851 74,481
Elimination of inter-segment revenues (12,805) (19,239) (16,135)
-------------- --------------- -------------
Total net revenue $ 94,633 $ 64,612 $ 58,346
============== =============== =============
Operating earnings (loss)
Laser correction and professional services $ 2,080 $ - $ -
Managed care services 1,723 1,253 859
Other integrated services 2,985 1,857 1,158
-------------- --------------- -------------
Segment totals 6,788 3,110 2,017
Depreciation (1,408) (1,133) (1,036)
Amortization (605) (284) (184)
Interest expense (3,248) (4,498) (3,866)
Corporate (887) - -
-------------- --------------- -------------
Operating earnings (loss) from continuing operations $ 640 $ (2,805) $ (3,069)
============== =============== =============
Assets:
Laser correction and professional services $ 919 $ - $ -
Managed care services 7,564 4,548 2,165
Other integrated services 14,409 6,403 9,760
-------------- --------------- -------------
Segment totals 22,892 10,951 11,925
Intangibles 32,443 810 881
Discontinued operations - 5,582 69,474
Corporate, cash and other 11,405 9,213 4,118
-------------- --------------- -------------
Total $ 66,740 $ 26,556 $ 86,398
============== =============== =============
Capital expenditures:
Managed care services $ 294 $ 196 $ 251
Other integrated services 1,504 412 1,600
-------------- --------------- -------------
Segment totals 1,798 608 1,851
Corporate 73 - -
-------------- --------------- -------------
Total $ 1,871 $ 608 $ 1,851
============== =============== =============
</TABLE>
F-14
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
6. RECEIVABLES
Activity in the allowance for doubtful accounts consisted of the following for
the years ended December 31:
1999 1998 1997
------------ ----------- -----------
Balance at beginning of period $ 218 $ 227 $ 238
Allowances of acquired companies 298 - -
Additions charged to expense 216 263 191
Deductions (106) (272) (202)
------------ ----------- -----------
Balance at end of period $ 626 $ 218 $ 227
============ =========== ===========
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
1999 1998
-------------- ----------------
Leasehold improvements $ 4,447 $ 2,085
Furniture and equipment 9,135 7,396
Computer hardware and software 3,728 1,090
-------------- ----------------
Total 17,310 10,571
Accumulated depreciation and amortization (7,631) (6,061)
-------------- ----------------
Property and equipment, net $ 9,679 $ 4,510
============== ================
8. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
1999 1998
------------- -------------------
Goodwill $ 24,506 $ 1,022
Administrative services agreement 7,123 -
Other 2,145 533
------------- -------------------
Total 33,774 1,555
Accumulated amortization (1,331) (745)
------------- -------------------
Intangible assets, net $ 32,443 $ 810
============= ===================
F-15
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
9. LONG-TERM DEBT
The details of the Company's long-term debt at December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Term note payable to bank in 15 quarterly principal amounts. Payable as follows:
$375 from April 1, 2000 to October 1, 2000; $1,375 payable January 1, 2001;
$1,000 from April 1, 2001 to October 1, 2002; $1,500 from January 1, 2003 to
October 1, 2003; $2,000 from January 1, 2004 to April 1, 2004. The 15th
principal payment is payable for the outstanding principal balance and is due
and payable on June 1, 2004. The interest rate equals the base rate or the
eurodollar rate which was 8.4% at December 31, 1999. The term
note is collateralized by substantially all assets of the Company. $21,500 -
Revolving credit note to bank, due June 1, 2004, interest payable
at the base rate or the eurodollar rate and is collateralized by
substantially all assets of the Company 11,500 -
Subordinated note payable due August 13, 2002, interest compounds quarterly
at a rate of 8.0%. (Paid January 2000) 2,000 -
Subordinated convertible promissory note payable due August 13, 2002.
Interest compounds quarterly at rate of 9.0% (cancelled January 2000) 4,000 -
Promissory notes payable due at various dates between 2000 and 2005.
Principal and interest payments are due monthly or annually. Interest is
payable at rates ranging from 5.5% to 9.5% (net of discount of $133 at 2,951 $226
December 31, 1999)
Note payable from practice acquisition due in annual installments of $240 plus
interest at 7.0% per year, through October 2003, collateralized
by specific assets of the Company. 960 -
Other notes payable due through September 2001. 237 -
Term note payable to bank in 19 quarterly principal amounts of $1,200 from
April, 1999 through July 1, 2001, then increasing to $2,000 or until the
obligation is paid in full, through January 1, 2004, with interest payable
in quarterly installments, collateralized by substantially all assets of
the Company. - 31,821
Revolving credit note to bank, due May 1, 2002, interest payable quarterly,
collateralized by substantially all assets of the Company (net of
unamortized discount of $62). - 7,929
------------- -----------
Total 43,148 39,976
Less current portion 3,459 39,784
------------- -----------
$39,689 $ 192
============= ===========
</TABLE>
The following represents maturities of long-term debt by year and in the
aggregate:
<TABLE>
<S> <C>
2000 $ 3,459
2001 4,852
2002 10,997
2003 6,272
2004 17,534
Thereafter 34
-------------
$43,148
=============
</TABLE>
F-16
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
On July 3, 1996, the Company entered into a loan and security agreement
with a bank (the "Old Credit Facility"). The agreement, as amended on November
25, 1996 and May 30, 1997, made available to the Company a revolving credit
facility permitting advances of up to $18,000 at any one time and term loans in
the aggregate principal amount of $32,000. As of December 31, 1998 the Company
was in default of certain restrictive covenants of the agreement and,
accordingly, all of the debt was classified as short-term at December 31, 1998.
In August 1999, in connection with the Merger, the Old Credit Facility was
repaid and the Company entered into a new loan agreement (the "Credit
Facility"). The Credit Facility made available to the Company a $21,500 term
loan and up to a $12,700 revolving loan facility secured by a security interest
in substantially all of the assets of the Company. As of December 31, 1999 the
Company had $800 of additional borrowing capacity available under its revolving
credit facility, net of a $400 letter of credit obligation. The outstanding
borrowings under the revolving loan facility and the term loan are individually
and collectively limited to specific available borrowing base amounts, as
defined in the agreement. The interest rate applicable to the credit facility
equals the base rate or the eurodollar rate (each as defined in the Credit
Facility), as the Company may from time to time elect, in accordance with the
provisions of the Credit Facility. The base rate is generally the higher of the
prime rate of the bank for domestic commercial loans in effect on such
applicable day, or 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 Company is charged a commitment fee of one-half of one percent (1/2 of 1%)
per annum of the sum of the aggregate average daily unused amount of the
Company's revolving loan facility. During 1999, the Company's average borrowing
rate was approximately 8.60%.
The Credit Facility contains certain restrictions on the conduct of the
Company's business, including restrictions on: incurring debt, declaring or
paying any cash dividends or any other payment or distributions on capital
stock, and creating liens on the Company's assets. The Company is required to
maintain certain financial ratios, including, a minimum fixed charge coverage
ratio, a leverage ratio, a senior leverage ratio and an interest coverage ratio.
The Company is also restricted from incurring capital expenditures in excess of
a specified amount and is required to achieve minimum cash flows.
At December 31, 1999 and 1998, the Company was a guarantor of debt of
related parties in the amount of $208 and $299, respectively.
At December 31, 1999 and 1998, the Company had standby letters of credit
outstanding in the amount of $400 and $600, respectively.
10. LEASES
The Company leases certain furniture, machinery and equipment under capital
lease agreements that expire through 2004. The Company primarily leases its
facilities under cancelable and noncancelable operating leases expiring in
various years through 2011. Several facility leases have annual rental terms
comprised of base rent at the inception of the lease adjusted annually by a
contingent amount based, in part, upon the increase in the consumer price index.
Also, certain facility leases contain provisions which provide for additional
contingent rents based on a stated percentage of sales. Rent expense charged to
operations during the years ended December 31, 1999, 1998 and 1997 was $3,010,
$2,302 and $2,193 of which $83 and $132 and $109, respectively, represent
contingent rent expense.
Property and equipment includes the following amounts for capital leases at
December 31:
1999 1998
--------- -----------
Furniture, machinery and equipment $ 1,393 $ 1,356
Less accumulated amortization (1,037) (1,057)
--------- -----------
$ 356 $ 299
========= ===========
F-17
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
Capital lease obligations of $147 and $219 were incurred for acquisition of
new equipment in 1999 and 1998, respectively. Amortization of capital leases is
included in depreciation and amortization expense.
Future minimum lease payments, by year and in the aggregate, under capital
leases and operating leases with remaining terms of one year or more consisted
of the following at December 31, 1999:
CAPITAL OPERATING
LEASES LEASES
------------ ---------------
2000 $ 110 $ 3,725
2001 96 2,939
2002 87 2,398
2003 56 2,069
2004 11 1,620
Thereafter - 2,450
------------ ---------------
Total minimum lease payments 360 $ 15,201
===============
Amounts representing interest (57)
------------
$ 303
============
11. 401(k) SAVINGS PLAN
The Company provides a defined contribution 401(k) savings plan to
substantially all employees who meet certain age and employment criteria.
Eligible employees are allowed to contribute a portion of their income in
accordance with specified guidelines. The Company matches a percentage of
employee contributions up to certain limits. Employer contributions are made on
a discretionary basis as authorized by the Board of Directors. Employer
contributions for the years ended December 31, 1999, 1998 and 1997 were $337,
$577 and $532, respectively.
12. RELATED PARTY TRANSACTIONS
The Company incurred rent expense and other fees of $123, $123 and $120 in
1999, 1998 and 1997, respectively, which was paid to certain doctors for the
use of equipment.
The Company incurred rent expense of $752, $450 and $347 in 1999, 1998 and
1997, respectively, which was paid to entities under common ownership, primarily
for the lease of facilities.
The Company has various notes receivable from related parties with interest
rates ranging from prime plus 1% to 9%, maturing from 1999 through 2006. The
total balance due under these notes receivable was $108 and $215 at December 31,
1999 and 1998, respectively, of which $14 and $40, respectively, has been
reflected as a current asset.
F-18
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
13. STOCKHOLDERS' EQUITY
MANDATORILY REDEEMABLE PREFERRED STOCK
In June of 1998, the Company issued 8,000 shares of redeemable, 8%
cumulative preferred stock, together with a stock purchase warrant enabling the
holder to purchase 1,333,333 shares of the Company's common stock, for $8,000.
Under the terms of the agreement, the preferred stockholders were entitled to
receive a guaranteed annual rate of return of 30% over the first four years of
the agreement. Accordingly, the Company recorded accrued dividends of $1,200
as of December 31, 1998 and $600 in 1999.
The estimated fair value of the stock purchase warrant was $1,293 at the
date of issuance in June 1998. This value was determined using the Black-Scholes
pricing model with the following assumptions: risk free interest rate of 4.67%,
no dividend yield, volatility factor of .7604 and an expected life of five
years. Initially, this value was recorded as a discount to the redeemable
preferred stock balance with a corresponding credit to additional paid-in
capital. This discount was to be amortized through charges to retained earnings
over the initial redemption period of the preferred stock, seven years. However,
in light of Prime's violation of financial covenants in the preferred stock
agreement in 1998 and the corresponding acceleration of the redemption period,
the remaining unamortized balance of the warrant discount was fully amortized at
December 31, 1998.
In August 1999, immediately prior to the Merger, the redeemable preferred
stock and warrant were exchanged for $2,000 of subordinated long term debt,
$4,000 of convertible subordinated long term debt and 2,033,333 shares of Prime
Vision common stock, which in turn were exchanged in the merger for 638,069
shares of common stock.
STOCK OPTION PLAN
Presented below is a summary of the status of the Company's stock options
and the related transactions for the years ended December 31, 1999, 1998 and
1997.
OPTIONS
OUTSTANDING RANGE
------------- -------------------
December 31, 1996 68,408 $ 4.78 - $ 15.93
Granted 172,904 $ 6.37 - $ 63.74
Canceled (471)
------------- -------------------
December 31, 1997 240,841 $ 4.78 - $ 63.74
Granted 2,981 $ 6.37 - $ 63.74
Canceled (38,957)
-------------
-------------------
December 31, 1998 204,865 $ 4.78 - $ 63.74
Canceled (145,346) $ 2.56 - $ 63.74
OptiCare converted 533,969 $ 2.56
Granted 721,250 $ 5.85
------------- -------------------
December 31, 1999 1,314,738 $ 2.56 - $ 63.74
------------- -------------------
The Company's executive stock plan, approved by the Board of Directors in
1996, provided for the granting of nonqualified incentive stock options with a
ten-year term. On August 13, 1999 options were granted to option holders of
OptiCare and Prime in substitution for existing options, which contained
substantially identical terms, except for a change in the exercise price and the
number of shares, which were adjusted to reflect the exchange ratio in
connection with the Merger.
F-19
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company accounted for its employee
stock options granted subsequent to December 31, 1995, under the fair value
method of SFAS 123. The weighted average fair value of the Company's stock
options, calculated using the Black-Scholes option-pricing model, granted during
1999 was $3.15 per share. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions:
1999 1998 1997
--------- -------------- -------------
Risk free interest rate 6.00% 4.67% 5.50%
Dividends -- -- --
Volatility factor .5500 .7604 .6321
Expected Life 5 years 8.27 years 5 years
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------- -------------- --------------
Net income (loss):
As reported $(1,966) $(38,090) $(1,405)
Pro forma $(2,091) $(38,110) $(1,415)
Earnings (loss) per share - basic and diluted:
As reported $ (0.54) $ (17.99) $ (0.76)
Pro forma $ (0.56) $ (18.00) $ (0.76)
The following table summarizes in more detail information regarding the
Company's stock options outstanding at December 31, 1999.
REMAINING
OUTSTANDING CONTRACTUAL OPTIONS
EXERCISE PRICE OPTIONS LIFE (IN YEARS) EXERCISABLE
--------------- ----------------- ------------------- -----------------
$ 2.56 491,131 8.0 140,388
$ 4.78 37,028 1.6 37,028
$ 5.85 721,250 9.7 -
$ 6.37 10,201 8.9 10,201
$ 9.56 4,707 7.0 4,707
$12.75 10,201 8.9 10,201
$15.93 10,983 7.0 10,983
$19.12 10,196 8.9 10,196
$47.80 2,423 2.7 2,423
$63.73 16,618 7.5 16,618
----------------- ------------
1,314,738 242,745
================= ============
F-20
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
14. EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Income (loss) from continuing operations applicable to common stockholders:
Income (loss) from continuing operations $ 351 $ (3,239) $ (2,034)
Accretion of redemption value of preferred stock and
Preferred stock dividends (600) (2,493) -
-------------- ------------- -------------
Income (loss) from continuing operations applicable to
Common stockholders $ (249) $ (5,732) $ (2,034)
============== ============= =============
Net income (loss) applicable to common stockholders:
Net income (loss) $ (1,966) $ (38,090) (1,405)
Accretion of redemption value of preferred stock and
Preferred stock dividends (600) (2,493) -
-------------- ------------- -------------
Net income (loss) applicable to common shareholders $ (2,566) $ (40,583) $ (1,405)
============== ============= =============
Weighted average common shares outstanding 4,776,501 2,256,461 1,855,931
============== ============= =============
Income (loss) per common share from continuing operations $ (0.05) $ (2.54) $ (1.10)
============== ============= =============
Net income (loss) per common share $ (0.54) $ (17.99) $ (.76)
============== ============= =============
</TABLE>
The weighted average common shares outstanding for all periods presented
have been adjusted to reflect the conversion associated with the Merger.
The following table reflects the potential common shares of the Company at
December 31, 1999, 1998 and 1997. These shares have been excluded from the
calculation of diluted earnings per share due to their antidilutive effect.
1999 1998 1997
----------- ----------- ----------
Options 1,314,738 652,855 767,500
Warrants 100,000 1,553,614 220,281
Common stock to be issued
for convertible preferred stock 418,803 - -
Common stock to be issued for
convertible debt 581,818 - -
----------- ----------- ----------
Total 2,415,359 2,206,469 987,781
=========== =========== ==========
F-21
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
15. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities consisted of the
following at December 31, 1999 and 1998:
1999 1998
----------- -------------
Deferred tax liabilities:
Cash to accrual adjustment - $1,604
Other $ 397 16
----------- -------------
Total current deferred tax liabilities 397 1,620
Other - 2
----------- -------------
Total noncurrent deferred tax liabilities - 2
----------- -------------
Total deferred tax liabilities $ 397 $1,622
=========== =============
Deferred tax assets:
Net operating loss carryforwards $ 200 -
Discontinued operations - $ 4,078
Accruals 2,047 712
Allowance for bad debts 263 163
Other 69 15
----------- -------------
Total current deferred tax assets 2,579 4,968
Depreciation and amortization 951 623
Other - 37
----------- -------------
Total noncurrent deferred tax asset 951 660
Valuation allowance - (4,006)
----------- -------------
Total deferred tax assets $3,530 $1,622
=========== =============
In 1998, management provided a valuation allowance to offset the potential
tax benefits of the Company's net deferred tax assets based on its assessment
that it is more likely than not that the entire deferred tax asset will not be
realized based on the Company's experience of cumulative, historical operating
losses. $2,200 of this valuation adjustment was used to reduce goodwill in
August 1999 in connection with the Merger and the balance was reversed against
deferred tax assets based upon a reassessment of temporary items.
The components of income tax expense (benefit) for the years ended December
31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---------- ------------- ------------
Current:
Federal $ 325 $ 141 -
State 66 20 -
---------- ------------- ------------
Total current 391 161 -
---------- ------------- ------------
Deferred:
Federal (85) 257 $(984)
State (17) 16 (51)
---------- ------------- ------------
Total deferred (102) 273 (1,035)
---------- ------------- ------------
Total income tax
(benefit) expense $289 $ 434 $ (1,035)
========== ============= ============
F-22
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
A reconciliation of the tax provision at the U.S. Statutory Rate to the
effective income tax rate as reported is as follows:
1999 1998 1997
---------- ------------ ------------
Tax provision (benefit)
at U.S. Statutory Rat 34.0% (34.0%) (34.0%)
State income taxes, net of
federal benefit 5.0% (3.0%) (3.0%)
Non-deductible expenses 6.2% 4.3% 11.3%
Change in valuation allowance - 48.2% (8.0%)
--------- ------------- ------------
Effective income tax
expense (benefit) rate 45.2% 15.5% (33.7%)
========= ============== ============
16. COMMITMENTS AND CONTINGENCIES
In connection with the Cohen Acquisition in 1999, the Company agreed to
pay, as additional consideration, a contingent payment of $200 based upon the
profitability from the operation of Cohen Systems, Inc. for the twelve month
period beginning October 1, 1999. The contingent payment, if any, shall be
payable in two $100 installments on October 31, 2000 and April 30, 2001. Any
such contingent payments will be recorded when earned, as goodwill as additional
purchase price consideration.
In connection with an ASA consummated in 1997 between the Company and an
ophthalmologist, the Company also entered into a related agreement which granted
the ophthalmologist the right, between the second and fourth anniversary of the
ASA, to require the Company to locate a third party to purchase all of the
outstanding shares of the ophthalmologist's practice for at least $4,000 in
either cash or stock, at the option of the ophthalmologist. In January 1999, the
ophthalmologist exercised his put option. The Company has asserted that it is
not obligated to honor the put and is seeking damages under the assertion that
the value of the ophthalmologist's practice sold to the Company was falsely
inflated. The ophthalmologist has counterclaimed to enforce the put. The Company
believes that it will prevail in the pending litigation and in any attempt to
enforce the put.
In the normal course of business, the Company is both a plaintiff and
defendant in lawsuits incidental to its current and former operations, some
alleging substantial claims. Such matters are subject to many uncertainties and
outcomes are not predicatable with assurance. Consequently, the ultimate
aggregate amount of monetary liability or financial impact with respect to these
matters at December 31, 1999 cannot be ascertained. Management is of the opinion
that, after taking into account the merits of defenses, insurance coverage and
established reserves, the ultimate resolution of these matters will not have a
material adverse effect in relation to the Company's consolidated financial
statements or results of operations.
17. SUBSEQUENT EVENTS
In January 2000, the Company completed the sale of 3,571,429 registered
shares of common stock. The net proceeds from the stock offering were
approximately $12,500, including the cancellation of a $2,000 subordinated note
payable previously issued by the Company. The shares were issued under a
registration statement filed with the Securities and Exchange Commission on
January 18, 2000. The Company used $7,000 of the net proceeds to pay down
long-term debt and expects to use the remaining proceeds for, among other
things, expansion of laser correction, working capital and general corporate
purposes.
F-23
<PAGE>
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
In February 2000 the Company entered into a definitive merger agreement
with Vision Twenty-One Inc., a publicly traded eye care company, whereby each
outstanding share of Vision Twenty-One Inc.common stock will be converted into
the right to receive 0.402 shares of the Company's common stock, which
conversion ratio is subject to adjustment as provided in the merger agreement.
The merger with Vision Twenty-One Inc. is subject to certain conditions
including, but not limited to, restructuring of certain debt obligations of the
Company, the Company obtaining financing and shareholder approval by each party.
F-24
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
OPTICARE HEALTH SYSTEMS, INC.
A DELAWARE CORPORATION
Amended and Restated as of March 27, 2000
<PAGE>
BY-LAWS
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I. OFFICES
Section 1.1 Registered Office 1
Section 2.1 Other Offices 1
Article II. STOCKHOLDERS
Section 2.1 Place of Meetings 1
Section 2.2 Voting List 1
Section 2.3 Annual Meetings 2
Section 2.4 Special Meetings 2
Section 2.5 Notices of Meeting 2
Section 2.6 Quorum; Adjournments 2
Section 2.7 Voting; Proxies 3
Section 2.8 Action Without Meeting 3
Section 2.9 Voting of Stock of Certain Holders; Elections; Inspections 4
Section 2.10 Conduct of Meetings 5
Section 2.11 Treasury Stock 5
Section 2.12 Fixing Record Date 5
Article III. BOARD OF DIRECTORS
Section 3.1 Powers 6
Section 3.2 Number, Election and Term 6
Section 3.3 Vacancies, Additional Directors and Removal From Office 7
Section 3.4 Regular Meetings; Election of Chairman of the Board 7
Section 3.5 Special Meetings 8
Section 3.6 Notice of Special Meeting 8
Section 3.7 Place of Meetings; Books; Order of Business 8
Section 3.8 Quorum and Participation 8
Section 3.9 Presumption of Assent 8
Section 3.10 Meetings By Telephone or Similar Communications Equipment 8
Section 3.11 Action Without Meeting 9
Section 3.12 Compensation 9
Section 3.13 Approval or Ratification of Acts or Contracts by Stockholders 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Article IV. COMMITTEE OF DIRECTORS
Section 4.1 Destination, Powers and Name 9
Section 4.2 Procedure; Meetings; Quorum 10
Section 4.3 Compensation 10
Article V. NOTICE
Section 5.1 Methods of Giving Notice 10
Section 5.2 Written Waiver 11
Article VI. OFFICERS
Section 6.1 Officers 11
Section 6.2 Election and Term of Office 11
Section 6.3 Removal 12
Section 6.4 Resignation 12
Section 6.5 Vacancies 12
Section 6.6 Salaries 12
Section 6.7 President 12
Section 6.8 Vice Presidents 13
Section 6.9 Secretary 13
Section 6.10 Treasurer 13
Section 6.11 Assistant Secretaries and Assistant Treasurers 14
Article VII. CONTRACTS, CHECKS AND DEPOSITS
Section 7.1 Contracts 14
Section 7.2 Checks and Notes 14
Section 7.3 Deposits 14
Article VIII. STOCK CERTIFICATES
Section 8.1 Issuance 14
Section 8.2 Lost Certificates 16
Section 8.3 Transfers 16
Section 8.4 Registered Stockholders 16
Section 8.5 Regulations Regarding Certificates 17
Article IX. DIVIDENDS
Section 9.1 Declaration 17
Section 9.2 Reserve 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Article X. INDEMNIFICATION 17
Article XI. MISCELLANEOUS
Section 11.1 Seal 20
Section 11.2 Books 20
Section 11.3 Fiscal Year 20
Section 11.4 Resignations 20
Section 11.5 Facsimile Signatures 20
Section 11.6 Reliance upon Books, Reports and Records 20
Section 11.7 Gender and Number 20
Section 11.8 Laws and Statutes 20
Section 11.9 Headings 20
Article XII. AMENDMENT 21
</TABLE>
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
OPTICARE HEALTH SYSTEMS, INC.
ARTICLE I
OFFICES
SECTION 1.1. Registered Office. The registered office of the
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware shall be the registered office named in
the original Certificate of Incorporation of the Corporation, or such other
office as may be designated from time to time by the Board of Directors in the
manner provided by law. Should the Corporation maintain a principal office or
place of business within the State of Delaware, such registered office need not
be identical to such principal office or place of business of the Corporation.
SECTION 1.2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. Place of Meetings. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
either within or without the State of Delaware and at such date and time as
shall be designated from time to time by the Board of Directors and stated in
the notice or waivers of notice of the meeting.
SECTION 2.2. Voting List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order for each class of stock, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting. during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place
1
<PAGE>
shall be specified in the notice, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.3. Annual Meetings. An annual meeting of the stockholders,
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix each year and set
forth in the notice of the meeting, which date shall be within 13 months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
SECTION 2.4. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, by the
President or by the Board of Directors, or by written order of a majority of the
directors, and shall be called by the Chairman of the Board, the President or
the Secretary at the request in writing of stockholders owning a majority of the
common stock of the Corporation issued and outstanding and entitled to vote.
Special meetings of holders of the outstanding shares of preferred stock of the
Corporation may be called in the manner and for the purposes provided in the
resolutions of the Board of Directors providing for the issue of such stock (a
"Preferred Stock Designation"). All requests for special meetings shall state
the purposes of the proposed meeting. The President or directors so calling, or
the stockholders so requesting, any such meeting shall fix the date and time of,
and the place (either within or without the State of Delaware) for, the meeting.
SECTION 2.5. Notices of Meeting. Written notice of the annual and each
special meeting of stockholders, stating the place, date and hour and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given to each stockholder entitled to vote thereat not less
than 10 nor more than 60 days before the meeting. Such notice may be delivered
either personally or by mail. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.
SECTION 2.6. Quorum; Adjournments. Except as otherwise provided in a
Preferred Stock Designation, the holders of stock having a majority of voting
power entitled to vote at any stockholders' meeting, present in person or
represented by proxy, shall constitute a quorum at any meeting of stockholders
for the transaction of business except as otherwise provided by applicable law
or by the Certificate of Incorporation. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the departure at said meeting of enough stockholders to leave
less than a quorum present.
Notwithstanding the other provisions of the Certificate of
Incorporation or these By-laws, the chairman of the meeting or the holders of a
majority of the shares of such stock, present in person or represented by proxy,
although not constituting a quorum, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting of the time
and place of
2
<PAGE>
the adjourned meeting, until a quorum shall be present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 2.7. Voting; Proxies. When a quorum is present at any meeting
of the stockholders, the vote of the holders of a majority of the stock having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is not one upon which, by
express provision of the statutes, of the Certificate of Incorporation or of
these By-laws, a different vote is required, in which case such express
provision shall govern and control the decision of such question. Where a
separate vote by class is required, the affirmative vote of the majority of
shares of such class present in person or represented by proxy at the meeting
shall be the act of such class. Every stockholder having the right to vote at a
meeting of stockholders or to express consent or dissent to a corporate action
in writing without a meeting shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder, bearing a
date not more than three years prior to voting, unless such instrument provides
for a longer period, and filed with the Secretary of the Corporation, or such
other officer as the Board of Directors may from time to time determine by
resolution, before, or at the time of, the meeting.
All proxies shall be received and taken charge of and all ballots shall
be received and canvassed by the secretary of the meeting who shall decide all
questions touching upon the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in which
event such inspector or inspectors shall decide all such questions. Each proxy
shall be revocable unless expressly provided therein to be irrevocable and
coupled with an interest sufficient in law to support an irrevocable power. If
such instrument shall designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all of the powers of voting or giving consents thereby
conferred, or if only one be present, then such powers may be exercised by that
one, or, if an even number attend and a majority do not agree on any particular
issue, each proxy so attending shall be entitled to exercise such powers in
respect of the same portion of the shares as he represents of the proxies
representing such shares.
SECTION 2.8. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation or any action which may be
taken at any annual or special meeting of such stockholders may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereupon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given by the Secretary of the Corporation to those stockholders who have not
consented in
3
<PAGE>
writing.
SECTION 2.9. Voting of Stock of Certain Holders; Elections; Inspectors.
Shares standing in the name of another corporation, domestic or foreign, may be
voted by such officer, agent or proxy as the by-laws of such corporation may
prescribe, or in the absence of such provision, as the Board of Directors of
such corporation may determine. Shares standing in the name of a deceased person
may be voted by the executor or administrator of such deceased person, either in
person or by proxy. Shares standing in the name of a guardian, conservator or
trustee may be voted by such fiduciary, either in person or by proxy, but no
fiduciary shall be entitled to vote shares held in such fiduciary capacity
without a transfer of such shares into the name of such fiduciary. Shares
standing in the name of a receiver may be voted by such receiver. A stockholder
whose shares are pledged shall be entitled to vote such shares, unless in the
transfer by the pledgor on the books of the Corporation, he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee, or his
proxy, may represent the stock and vote thereon.
If shares or other securities having voting power stand of record in
the names of two or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety or otherwise, or if
two or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary of the Corporation is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect:
(1) If only one votes, his act binds all;
(2) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery or such other court as may have jurisdiction to
appoint an additional person to act with the persons so voting the shares, which
shall then be voted as determined by a majority of such persons and the person
appointed by the Court. If the instrument so filed shows that any such tenancy
is held in unequal interests, a majority or even split for the purpose of this
subsection shall be a majority or even split in interest.
All voting, except as required by the Certificate of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by stockholders holding a majority of the issued and
outstanding stock present in person or by proxy at any meeting, a stock vote
shall be taken. Every stock vote shall be taken by written ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
All elections of directors shall be by ballot, unless otherwise provided in the
Certificate of Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability.
4
<PAGE>
Such inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
SECTION 2.10. Conduct of Meetings. The meetings of the stockholders
shall be presided over by a chairman of the meeting, who shall be the Chairman
of the Board, or if he is not present, by the President, or if neither the
Chairman of the Board nor the President is present, by a chairman elected at the
meeting. The Secretary of the Corporation, if present, shall act as secretary of
such meetings, or if he is not present, an Assistant Secretary shall so act, and
if neither the Secretary nor an Assistant Secretary is present, then a secretary
shall be appointed by the chairman of the meeting. The chairman of any meeting
of stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order. Unless the chairman of the meeting of
stockholders shall otherwise determine, the order of business shall be as
follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary, if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
SECTION 2.11. Treasury Stock. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it, and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.12. Fixing Record Date. The Board of Directors may fix in
advance a date, not exceeding 60 days preceding the date of any meeting of
stockholders or any adjournment thereof, or the date for payment of any dividend
or distribution, or the date for the allotment of rights, or the date when any
change, conversion or exchange of capital stock shall go into effect, or a date
in connection with obtaining express consent to corporate action in writing
without a meeting, as a record date for the determination of the stockholders
entitled to notice of or to vote at, any such meeting and any adjournment
thereof, or entitled to receive payment of such dividend or distribution, or to
receive any such allotment of rights, or to exercise the rights in respect of
any such change, conversion or exchange of capital stock, or to give such
consent, and in such case such stockholders and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled
5
<PAGE>
to such notice of, and to vote at, any such meeting and any adjournment thereof,
or to receive payment of such dividends or distribution, or to receive such
allotment of rights, or to exercise such rights, or to give such consent, as the
case may be, notwithstanding any such record date fixed as aforesaid. With
respect to a meeting of stockholders, the record date shall not be less than 10
days before the date of such meeting.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
date next preceding the day on which notice is given, or, if in accordance with
Section 5.2 of these By-laws notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. If, in accordance with
Section 2.8 of this Article II, corporate action without a meeting of
stockholders is to be taken, the record date for determining stockholders
entitled to express consent to such corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. Powers. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders.
SECTION 3.2. Number, Election and Term. The number of directors which
shall constitute the whole Board shall from time to time be fixed and determined
by resolution of the Board of Directors and shall be set forth in the notice of
any meeting of stockholders held for the purpose of electing directors (provided
that no decrease in the number of directors which would have the effect of
shortening the term of an incumbent director may be made by the Board of
Directors and further provided that the number of directors shall never be less
than one 1). If the Board of Directors makes no such determination, the number
of directors shall be the number set forth in the Certificate of Incorporation.
Each director shall hold office for the term for which he is elected, and until
his successor shall have been elected and qualified or until his earlier death,
resignation or removal. The directors shall be elected at the annual meeting of
stockholders, except as provided in Section 3.3 of these By-laws. Unless
otherwise provided in the Certificate of Incorporation, directors need not be
residents of Delaware or stockholders of the Corporation.
6
<PAGE>
SECTION 3.3. Vacancies, Additional Directors and Removal From Office.
If any vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or if any new directorship is created by an increase in the
authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
or fill the newly created directorship and a director so chosen shall hold
office until the next annual election and until his successor shall be duly
elected and shall qualify, unless sooner displaced.
Whenever the holders of any class or classes of stock or series thereof
are entitled to elect one or more directors by the provisions of the Certificate
of Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series therein then in office, or by a sole remaining
director so elected. If the directors of the Corporation are divided into
classes, any directors elected to fill vacancies or newly created directorships
shall hold office until the next election of the class for which such directors
shall have been chosen, and until their successors shall be duly elected and
shall qualify.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors; provided that, unless the Certificate of
Incorporation otherwise provides, if the Board of Directors is elected by class
or classes or series thereof, then the stockholders may effect such removal only
for cause, and provided further that, if the Certificate of Incorporation
expressly grants to stockholders the right to cumulate votes for the election of
directors and if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which such director is a part.
SECTION 3.4. Regular Meetings; Election of Chairman of the Board. A
regular meeting of the Board of Directors shall be held each year, without
notice other than this By-law, at the place of, and immediately following, the
annual meeting of stockholders if a quorum is present, and other regular
meetings of the Board of Directors shall be held each year, at such time and
place as the Board of Directors may provide, by resolution, either within or
without the State of Delaware, without notice other than such resolution. At the
first meeting of the Board of Directors in each year at which a quorum shall be
present, held next after the annual meeting of stockholders, the Board of
Directors shall proceed to the election of the officers of the Corporation and a
Chairman of the Board. The Chairman of the Board shall be elected from among the
directors and shall preside at all meetings of the Board of Directors or of the
stockholders of the Corporation. In the Chairman's absence, such duties shall be
attended to by the Vice Chairman of the Board, if any. The Chairman may delegate
to any qualified person the chairmanship of any meeting of the stockholders,
either on a temporary or a permanent basis. The Chairman of the Board shall
formulate and submit to the Board of Directors or the executive committee (if
any) matters of general policy of the Corporation and shall perform such other
duties as usually appertain to the office or as may be prescribed by the Board
of Directors or the executive committee.
7
<PAGE>
SECTION 3.5. Special Meetings. A special meeting of the Board of
Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
The Chairman of the Board or President so calling, or the directors so
requesting, any such meeting shall fix the time and place, either within or
without the State of Delaware, of such meeting.
SECTION 3.6. Notice of Special Meeting. Personal written, telegraphic,
cable or wireless notice of special meetings of the Board of Directors shall be
given to each director at least 24 hours prior to the time of such meeting. Any
director may waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting, except that notice shall be given of any proposed amendment to the
by-laws if it is to be adopted at any special meeting or with respect to any
other matter where notice is required by statute.
SECTION 3.7. Place of Meetings; Books; Order of Business. The directors
may hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from time
to time determine by resolution. At all meetings of the Board of Directors,
business shall be transacted in such order as shall from time to time be
determined by the Chairman of the Board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
SECTION 3.8. Quorum and Participation. A majority of the Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute, by
the Certificate of Incorporation or by these By-laws. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 3.9. Presumption of Assent. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof. Such right to dissent shall not apply to a director who
voted in favor of such action.
SECTION 3.10. Meetings By Telephone or Similar Communications
Equipment. Members of the Board of Directors, or members of any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in
8
<PAGE>
person and attendance at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
SECTION 3.11. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof as provided in Article IV of these By-laws, may be taken
without a meeting, if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
SECTION 3.12. Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors. No provision of these By-laws shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
SECTION 3.13. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present), shall be as valid and as binding upon the Corporation and upon all of
the stockholders as if it had been approved or ratified by every stockholder of
the Corporation. In addition, any such act or contract may be approved or
ratified by the written consent of stockholders holding a majority of the issued
and outstanding shares of capital stock of the Corporation entitled to vote and
such consent shall be as valid and as binding upon the Corporation and upon all
of the stockholders as if it had been approved or ratified by every stockholder
of the Corporation.
ARTICLE IV
COMMITTEE OF DIRECTORS
SECTION 4.1. Designation, Powers and Name. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, including, if they shall so determine, an executive committee, each
such committee to consist of one or more of the directors of the Corporation.
Any such designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution. Any such
designated committee may authorize the seal of the Corporation to be affixed to
all papers which may require it. No such committee shall
9
<PAGE>
have the power or authority in reference to amending the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided by statute, fix any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation and, unless the resolution, By-laws, or Certificate
of Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee. In the absence
or disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such name or names
and such limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors.
SECTION 4.2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 4.1 of these By-laws shall choose its own chairman, shall
keep regular minutes of its proceedings and report the same to the Board of
Directors when requested, shall fix its own rules or procedures, and shall meet
at such times and at such place or places as may be provided by such rules, or
by resolution of such committee or resolution of the Board of Directors. At
every meeting of any such committee, the presence of a majority of all of the
members thereof shall constitute a quorum and the affirmative vote of a majority
of the members present shall be necessary for the adoption by it of any
resolution.
SECTION 4.3. Compensation. Members of special or standing committees
may be allowed compensation for attending committee meetings, if the Board of
Directors shall so determine.
ARTICLE V
NOTICE
SECTION 5.1. Methods of Giving Notice. Whenever under the provisions of
the statutes, the Certificate of Incorporation or these By-laws, notice is
required to be given to any director, member of any committee or stockholder,
such notice shall be in writing and delivered personally or mailed to such
director, member or stockholder; provided that in the case of a director or a
member of any committee, such notice may be given orally or by telephone,
telegram, telegraphic,
10
<PAGE>
cable or wireless transmission. If mailed, notice to a director, member of a
committee or stockholder shall be deemed to be given when deposited in the
United States mail first class in a sealed envelope, with postage thereon
prepaid, addressed, in the case of a stockholder, to the stockholder at the
stockholder's address as it appears on the records of the corporation or, in the
case of a director or a member of a committee, to such person at his business
address. If sent by telegram, notice to a director or member of a committee
shall be deemed to be given when the telegram, so addressed, is delivered to the
telegraph company. Notice shall be deemed to have been given on the date of any
telegraphic, cable or wireless transmission.
SECTION 5.2. Written Waiver. Whenever any notice is required to be
given under the provisions of the statutes, the Certificate of Incorporation or
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or these By-laws.
ARTICLE VI
OFFICERS
SECTION 6.1. Officers. The officers of the Corporation shall be a
President and a Secretary, and may include one or more Vice Presidents, any one
or more of which may be designated Executive Vice President or Senior Vice
President, a Treasurer, and such other officers as the Board of Directors may
elect or appoint. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director). The Board of
Directors may appoint such other officers and agents, including Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined by the Board. Any two or
more officers may be held by the same person unless the Certificate of
Incorporation provides otherwise. No officer shall execute, acknowledge, verify
or countersign any instrument on behalf of the Corporation in more than one
capacity, if such instrument is required by law, by these By-laws or by any act
of the Corporation to be executed, acknowledged, verified or countersigned by
two or more officers. None of the officers need be a director, except in the
case of the Chairman of the Board of Directors, and none of the officers need be
a stockholder of the Corporation.
SECTION 6.2. Election and Term of Office. The officers of the
Corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as is conveniently possible. Each officer shall hold office until his
11
<PAGE>
successor shall have been chosen and shall have qualified or until his death or
the effective date of his resignation or removal, or until he shall cease to be
a director in the case of the Chairman and the Vice Chairman.
SECTION 6.3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed, with or without cause, by the affirmative
vote of a majority of the Board of Directors whenever, in its judgment, the best
interests of the Corporation shall be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
SECTION 6.4. Resignation. Any officer may resign at any time by giving
written notice to the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 6.5. Vacancies. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 6.6. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors or pursuant to its
direction. No officer shall be prevented from receiving such salary by reason of
his also being a director.
SECTION 6.7. President. The President shall be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, the Chairman of the Board, and the Vice Chairman of the Board, shall
in general manage, supervise and control the properties, business and affairs of
the Corporation with all such powers as may be reasonably incident to such
responsibilities. Unless the Board of Directors, the Chairman of the Board, or
the Vice Chairman of the Board otherwise determines, the President shall have
the authority to agree upon and execute all leases, contracts, evidences of
indebtedness and other obligations in the name of the Corporation. In the
absence of the Chairman of the Board and the Vice Chairman of the Board, the
President shall preside at all meetings of the stockholders and (should he be a
director) of the Board of Directors. He may also preside at any such meeting
attended by the Chairman of the Board if he is so designated by the Chairman of
the Board. He shall have the power to appoint and remove subordinate officers,
agents and employees, except those elected or appointed by the Board of
Directors. The President shall keep the Board of Directors and the executive
committee fully informed and shall consult them concerning the business of the
Corporation. He may sign with the Secretary or any other officer of the
Corporation thereunto authorized by the Board of Directors certificates for
shares of the Corporation and any deeds, bonds, mortgages, contracts, checks,
notes, drafts or other instruments which the Board of Directors has authorized
to be executed, except in cases where the signing and execution thereof has been
expressly delegated by these By-laws or by the Board of Directors to some other
officer or agent of the Corporation, or is required by law to be otherwise
executed. He shall vote, or give a proxy to any other officer of the Corporation
to vote,
12
<PAGE>
all shares of stock of any other corporation standing in the name of the
Corporation and shall exercise any and all rights and powers which the
Corporation may possess by reason of its ownership of securities in such other
corporation and in general he shall perform all other duties, and shall have
such other powers, as may be prescribed by the stockholders, the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, or the
executive committee from time to time.
SECTION 6.8. Vice Presidents. In the absence of the President, or in
the event of his inability or refusal to act, the Executive Vice President (or
in the event there shall be no Vice President designated Executive Vice
President, any Vice President designated by the Board) shall perform the duties
and exercise the powers of the President, and when so acting shall have all of
the powers of and be subject to all of the restrictions upon the President. In
the absence of a designation by the Board of Directors of a Vice President to
perform the duties of the President, or in the event of his absence or inability
or refusal to act, the Vice President who is present and who is senior in terms
of time as a Vice President of the Corporation shall so act. Any Vice President
may sign, with the Secretary or Assistant Secretary, certificates for shares of
the Corporation. The Vice Presidents shall perform such other duties, and shall
have such other powers, as from time to time may be assigned to them by the
President, the Board of Directors or the executive committee (if any).
SECTION 6.9. Secretary. The Secretary shall (a) keep the minutes of the
meetings of the stockholders, the Board of Directors and committees of
directors, (b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law, (c) be custodian of the
corporate records and of the seal of the Corporation, see that the seal of the
Corporation or a facsimile thereof is affixed to all certificates for shares
prior to the issuance thereof and to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized in accordance with
the provisions of these By-laws and attest the affixation of the seal of the
Corporation thereto, (d) keep or cause to be kept a register of the post office
address of each stockholder which shall be furnished by such stockholder, (e)
sign with the President, or an Executive Vice President or Vice President,
certificates for shares of the Corporation, the issue of which shall have been
authorized by resolution of the Board of Directors, (f) have general charge of
the stock transfer books of the Corporation, and (g) in general, perform all
duties normally incident to the office of Secretary and such other duties, and
shall have such other powers, as from time to time may be assigned to him by the
President, the Board of Directors or the executive committee (if any).
SECTION 6.10. Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. He
shall (a) have charge and custody of and be responsible for all funds and
securities of the Corporation, receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Section
7.3 of these By-laws, (b) prepare, or cause to be prepared, for submission at
each regular meeting of the Board of Directors, at each annual meeting of the
stockholders, and at such other times as may be required by the Board of
Directors, the President or
13
<PAGE>
the executive committee (if any), a statement of financial condition of the
Corporation in such detail as may be required, and (c) in general, perform all
of the duties incident to the office of Treasurer and such other duties, and
shall have such other powers, as from time to time may be assigned to him by the
President, the Board of Directors or the executive committee (if any).
SECTION 6.11. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and Assistant Treasurers shall, in general, perform such
duties and have such powers as shall be assigned to them by the Secretary or the
Treasurer, respectively, or by the President, the Board of Directors or the
executive committee. The Assistant Secretaries and Assistant Treasurers shall,
in the absence or inability or refusal to act of the Secretary or Treasurer,
respectively, perform all functions and duties which such absent officers may
delegate, but such delegation shall not relieve the absent officer from the
responsibilities and liabilities of his office. The Assistant Secretaries may
sign, with the President or a Vice President, certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.1. Contracts. Subject to the provisions of Section 6.1 of
these By-laws, the Board of Directors may authorize any officer, officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
SECTION 7.2. Checks and Notes. All checks, demands, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers or
such agent or agents of the Corporation, and in such manner, as shall be
determined by the Board of Directors.
SECTION 7.3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VIII
STOCK CERTIFICATES
SECTION 8.1. Issuance. The shares of the Corporation shall be
represented by certificates,
14
<PAGE>
provided that the Board of Directors may provide by resolution that some or all
classes or series of the Corporation's stock may be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the Corporation. The certificates shall
be in such form as may be determined by the Board of Directors, shall be issued
in numerical order and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares (and if
the stock of the Corporation shall be divided into classes or series, the class
or series of such shares) and shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary. Any or all of the
signatures on the certificate may be facsimiles. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class of stock; provided that, except as otherwise
provided by statute, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate which the Corporation shall issue
to represent such class or series of stock a statement that the Corporation will
furnish to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this Section 8.1
or otherwise required by law or with respect to this Section 8.1 a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of uncertificated stock and the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
All certificates surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in the case of a lost, stolen, destroyed or mutilated certificate
15
<PAGE>
a new one may be issued therefor upon such terms and with such indemnity, if
any, to the Corporation as the Board of Directors may prescribe.
The Corporation may, but shall not be required to, issue fractions of a
share. If the Corporation does not issue fractions of a share, it shall (1)
arrange for the disposition of fractional interests by those entitled thereto,
(2) pay in cash the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined, or (3) issue scrip or
warrants in registered form (either represented by a certificate or
uncertificated) or bearer form (represented by a certificate) which shall
entitle the holder to receive a full share upon the surrender of such scrip or
warrants aggregating a full share. A certificate for a fractional share or an
uncertificated fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing the full shares or uncertificated
full shares before a specified date, or subject to the conditions that the
shares for which scrip or warrants are exchangeable may be sold by the
Corporation and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions which the Board of Directors may
impose.
SECTION 8.2. Lost Certificates. The Board of Directors may direct a new
certificate of stock or uncertificated shares to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
or to give the Corporation a bond in such sum as it may deem sufficient to
indemnify it against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares, or both.
SECTION 8.3. Transfers. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and register the
transaction upon its books. Upon presentation to the Corporation or the transfer
agent of the Corporation of an instruction with a request to transfer, pledge or
release an uncertificated share or shares, it shall be the duty of the
Corporation to register the transfer, pledge or release upon its books, and
shall provide the registered owner with such notices as may be required by law.
Transfers of shares shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney and filed with the Secretary of the Corporation or the transfer agent.
SECTION 8.4. Registered Stockholders. The Corporation shall be entitled
to treat the
16
<PAGE>
registered owner of any share or shares of stock whether certificated or
uncertificated as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
SECTION 8.5. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
ARTICLE IX
DIVIDENDS
SECTION 9.1. Declaration. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to applicable law. Dividends may be paid in cash, in property
or in shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 9.2. Reserve. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INDEMNIFICATION
(i) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
17
<PAGE>
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(ii) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(iii) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (i) and (ii) hereof, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under subsections (i) and (ii) hereof (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (i) and (ii) hereof.
Such determination shall be made (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (2) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.
(v) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized herein. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
18
<PAGE>
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(vii) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under this section.
(viii) For purposes of this section, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had the power and authority to indemnify its directors, officers, and
employees and agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(ix) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
section.
(x) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(xi) The Court of Chancery of the State of Delaware is hereby vested
with exclusive jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Court of Chancery of the State of Delaware may summarily determine the
Corporation's obligation to advance expenses (including attorneys' fees).
19
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Seal. The Board of Directors may provide a suitable seal,
containing the name of the corporation, and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
SECTION 11.2. Books. The books of the Corporation may be kept (subject
to any provision of law) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors.
SECTION 11.3. Fiscal Year. The fiscal year of the Corporation shall be
as established from time to time by the Board of Directors.
SECTION 11.4. Resignations. Any director, member of a committee or
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 11.5. Facsimile Signatures. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
By-laws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
SECTION 11.6. Reliance upon Books, Reports and Records. Each director
and each member of any committee designated by the Board of Directors shall, in
the performance of his duties, be fully protected in relying in good faith upon
the books of account or reports made to the Corporation by any of its officers,
or by an independent certified public accountant, or by an appraiser selected
with reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
SECTION 11.7. Gender and Number. Wherever used or appearing in these
By-laws, pronouns of the masculine gender shall include the persons of the
female sex as well as the neuter gender and the singular shall include the
plural wherever appropriate.
SECTION 11.8. Laws and Statutes. Wherever used or appearing in these
By-laws, the words "law" or "laws " or "statute " or "statutes, " respectively,
shall mean and refer to laws and statutes, or a law or statute, of the State of
Delaware, to the extent only that such is or are expressly applicable, except
where otherwise expressly stated or the context requires that such words not be
so limited.
SECTION 11.9. Headings. The headings of the Articles and Sections of
these By-laws are
20
<PAGE>
inserted for convenience of reference only and shall not be deemed to be a part
thereof or used in the construction or interpretation thereof.
ARTICLE XII
AMENDMENT
If provided in the Certificate of Incorporation of the Corporation, the
Board of Directors shall have the power to adopt, amend and repeal from time to
time By-laws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such By-laws as adopted
or amended by the Board of Directors.
Dated as of March 27, 2000
21
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED EFFECTIVE MARCH 27, 2000)
1. Purpose of the Plan. The purpose of the amended and restated 1999
Employee Stock Purchase Plan is to secure for OptiCare Health Systems, Inc. (the
"Company") and its stockholders the benefits of the incentive inherent in the
ownership of the Company's common stock by present and future employees of the
Company and its subsidiaries. The Plan is intended to comply with the provisions
of Sections 421, 423 and 424 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Plan shall be administered, interpreted, and construed in
accordance with such provisions.
2. Shares Reserved for the Plan. There shall be reserved for issuance
and purchase by employees under the Plan an aggregate of 450,000 shares of
common stock of the Company ("common stock"), subject to adjustment as provided
in Section 11. Notwithstanding the foregoing, the number of shares of common
stock available for issuance and purchase by employees under this Plan shall be
reduced by the number of shares of common stock issued under the Company's 2000
Professional Employee Stock Purchase Plan. Shares subject to the Plan may be
shares now or hereafter authorized but unissued, or shares that were once issued
and subsequently reacquired by the Company.
3. Administration of the Plan. The Plan shall be administered at the
expense of the Company by a committee appointed by the board of directors of the
Company (the "Board") consisting of not less than two members of the Board who
shall serve at the pleasure of the Board and which shall be designated as the
Compensation Committee (hereinafter referred to as the "Committee"). No member
of the Committee shall be eligible to participate in the Plan. Subject to the
express provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
and to make all other determinations necessary or advisable in administering the
Plan, all of which determinations shall be final and binding upon all persons
unless otherwise determined by the board of directors. A quorum of the Committee
shall consist of a majority of its members and the Committee may act by vote of
a majority of its members at a meeting at which a quorum is present, or without
a meeting by a written consent to the action taken signed by all members of the
Committee.
4. Eligible Employees. All employees of the Company, and its
subsidiaries shall be eligible to participate in the Plan, provided each of such
employees:
a. has customary employment of a minimum of 20 hours per week,
b. has customary employment for more than five months in a calendar
year, and
c. does not own, immediately after the right is granted, stock
possessing 5% or more of the total combined voting power or value
of all classes of stock of the Company or a subsidiary company.
<PAGE>
In determining whether a company is a subsidiary, the rules of Section
424(f) of the Code shall be followed, and in determining stock ownership under
this paragraph the rules of Section 424(d) of the Code shall apply and stock
which the employee may purchase under outstanding options shall be treated as
stock owned by the employee. For all purposes of the Plan, "employment" shall be
defined in accordance with the provisions of Section 1.421-7(h) of the Income
Tax Regulations (or any successor regulations). Employees eligible to
participate in the Plan pursuant to the provisions of this Section 4 are
hereinafter referred to as "Eligible Employees".
5. Election to Participate. Each Eligible Employee may participate in
the Plan by filing with the Committee an election to purchase form (the "Form")
authorizing specified regular payroll deductions. Payroll deductions may be in
any amount specified by an employee, but the annual rate of deductions may not
exceed 20% of the employee's annual rate of base compensation (as defined by the
Committee) in effect at the time of the filing of the Form. All regular payroll
deductions shall be credited to a non-interest bearing account which the Company
shall establish in the name of each participant ("Payroll Deduction Account").
Eligible Employees who so elect to participate in the Plan are hereinafter
referred to as "Participating Employees."
All funds in Payroll Deduction Accounts may be used by the Company for
any corporate purpose, subject to the right of a Participating Employee to
withdraw at any time an amount equal to the balance accumulated in the
employee's Payroll Deduction Account. A Participating Employee may at any time,
but not more than once during any calendar quarter, increase or decrease the
employee's payroll deduction by filing a new Form which shall become effective
on the following payroll date.
6. Limitation on Number of Shares Which an Employee May Purchase. No
Eligible Employee may be granted an option under the Plan that permits the
employee to purchase stock under the Plan (and any other employee stock purchase
plans qualified under Section 423 of the Code and sponsored by the Company or
any of its subsidiaries) at a rate which exceeds $25,000 in fair market value of
such stock (determined at the time the option is granted) for each calendar year
in which any such option granted to such individual is outstanding at any time.
The foregoing limitation shall be interpreted by the Committee in
accordance with applicable rules and regulations issued under the Code.
7. Purchase Price. The Purchase Price for each share of common stock
shall be 85% (or such higher percentage as the Committee may determine from time
to time) of the fair market value of such share on the Investment Date as
hereinafter defined, provided that the Purchase Price shall in no event be less
than the par value of such share.
Fair market value on a given date means (i) if the common stock is
listed on a national securities exchange, the mean between the highest and
lowest sale prices reported as having
2
<PAGE>
occurred on the primary exchange on which the common stock is listed and traded
on the date prior to such date, or, if there is no such sale on that date, then
on the last preceding date on which such a sale was reported; (ii) if the common
stock is not listed on any national securities exchange but is quoted in the
National Market System of The Nasdaq Stock Market on a last sale basis, the
average between the high bid price and low ask price reported on the date prior
to such date, or, if there is no such sale on that date, then on the last
preceding date on which a sale was reported; or (iii) if the common stock is not
listed on a national securities exchange nor quoted in the National Market
System of The Nasdaq Stock Market on a last sale basis, the amount determined by
the Committee to be the fair market value based upon a good faith attempt to
value the common stock accurately.
8. Method of Purchase and Investment Accounts. The last business day
of the third month in each calendar quarter commencing on or after the effective
date of the Plan shall be known as an Investment Date. Each Participating
Employee having funds in the employee's Payroll Deduction Account on an
Investment Date shall be deemed, without any further action, to have been
granted and have exercised such employee's right to purchase one or more full or
fractional shares which the funds in such employee's Payroll Deduction Account
could purchase at the Purchase Price on such Investment Date, subject to the
restrictions set forth in Section 6. All full or fractional shares so purchased
shall be credited to each Participating Employee and any balance in the
employee's Payroll Deduction Account, if any, shall be retained in such Account.
9. Rights as a Stockholder. Upon each Investment Date, or as soon
thereafter as practicable, a certificate for each full share of common stock
credited to the employee will be forwarded to the employee or such full shares
and fractional shares will otherwise be credited to the employee. In the event a
Participating Employee terminates his or her Payroll Deduction Account, any
fractional shares credited to the Participating Employee will be paid to such
employee in cash.
10. Rights Not Transferable. Rights under the Plan are not transferable
by a Participating Employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
11. Adjustment for Changes in the Company's Stock. In the event of a
subdivision of outstanding shares of common stock, or the payment of a stock
dividend thereon, the number of shares reserved or authorized to be reserved
under the Plan shall be increased proportionately, and such other adjustment
shall be made as may be deemed necessary or equitable by the Committee. In the
event of any other change affecting the common stock, such adjustments shall be
made as may be deemed equitable by the Committee to give proper effect to such
event subject to the limitations of Section 424 of the Code.
12. Retirement, Termination and Death. In the event of a Participating
Employee's retirement or other termination of employment, or in the event that
the employee otherwise
3
<PAGE>
ceases to be an Eligible Employee, the amount in the employee's Payroll
Deduction Account shall be refunded to the employee and, in the event of death,
shall be paid to the employee's designated beneficiary under the Plan.
13. Amendment of the Plan. The board of directors may at any time amend
the Plan in any respect, except that, without the approval of the stockholders
of the Company, no amendment shall be made (a) changing the number of shares to
be reserved under the Plan (other than as provided in Section 11), or (b) the
effect of which will cause it to fail to meet the requirements of Section 423 of
the Code.
14. Termination of the Plan. The Plan and all rights of employees
hereunder shall terminate:
(a) on the Investment Date that Participating Employees become
entitled to purchase a number of shares greater than the
number of reserved shares remaining available for purchase:
or
(b) at any time, at the discretion of the board of directors,
effective as of the completion of any calendar quarter.
In the event that the Plan terminates under circumstances described in
(a) above, reserved shares remaining as of the termination date shall be issued
to Participating Employees on a pro rata basis.
15. Effective Date of the Plan. The Plan became effective on August 13,
1999; upon the approval by the stockholders of the Company in the manner
permitted by Section 423 of the Code. The Plan was amended and restated by the
Board effective on March 27, 2000 to reduce the number of shares of common stock
available for issuance under this Plan to the extent of the number of shares of
common stock issued under the Company's 2000 Professional Employee Stock
Purchase Plan.
16. Government and Other Regulations. The Plan, and the grant and
exercise of the rights to purchase shares hereunder, and the Company's
obligation to sell and deliver shares upon the exercise of rights to purchase
shares, shall be subject to all applicable Federal, State and foreign laws,
rules and regulations, and to such approvals by any regulatory or government
agency as may, in the opinion of counsel for the Committee, be required.
4
<PAGE>
2000 PROFESSIONAL EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan. The purpose of the 2000 Professional Employee
Stock Purchase Plan is to secure for OptiCare Health Systems, Inc. (the Company)
and its stockholders the benefits of the incentive inherent in the ownership of
the Company's common stock by present and future employees of the Company and
its subsidiaries and affiliates.
2. Shares Reserved for the Plan. There shall be reserved for issuance
and purchase under the Plan an aggregate of 450,000 shares of common stock of
the Company ("common stock"), subject to adjustment as provided in Section 11.
Notwithstanding the foregoing, the number of shares of common stock available
for issuance and purchase under the Plan shall be reduced by the number of
shares of common stock issued under the Company's 1999 Employee Stock Purchase
Plan. Shares subject to the Plan may be shares now or hereafter authorized but
unissued, or shares that were once issued and subsequently reacquired by the
Company.
3. Administration of the Plan. The Plan shall be administered at the
expense of the Company by a committee appointed by the board of directors of the
Company (the "Board") consisting of not less than two members of the Board who
shall serve at the pleasure of the Board and which shall be designated as the
Compensation Committee (hereinafter referred to as the "Committee"). No member
of the Committee shall be eligible to participate in the Plan. Subject to the
express provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
and to make all other determinations necessary or advisable in administering the
Plan, all of which determinations shall be final and binding upon all persons
unless otherwise determined by the board of directors. A quorum of the Committee
shall consist of a majority of its members and the Committee may act by vote of
a majority of its members at a meeting at which a quorum is present, or without
a meeting by a written consent to the action taken signed by all members of the
Committee.
4. Eligible Employees. All employees of the Company, its subsidiaries
and affiliates, including, but not limited to, OptiCare, P.C. and Optometric Eye
Care Center, P.A. and their respective subsidiaries, shall be eligible to
participate in the Plan, provided each of such employees:
a. has customary employment of a minimum of 20 hours per week,
b. has customary employment for more than five months in a calendar
year, and
c. does not own, immediately after the right is granted, stock
possessing 5% or more of the total combined voting power or value
of all classes of stock of the Company or a subsidiary company.
In determining whether a company is a subsidiary, the rules of Section
424(f) of the Code
<PAGE>
shall be followed, and in determining stock ownership under this paragraph the
rules of Section 424(d) of the Internal Revenue Code of 1986, as amended (the
"Code"), shall apply and stock which the employee may purchase under outstanding
options shall be treated as stock owned by the employee. Employees eligible to
participate in the Plan pursuant to the provisions of this Section 4 are
hereinafter referred to as "Eligible Employees".
5. Election to Participate. Each Eligible Employee may participate in
the Plan by filing with the Committee an election to purchase form (the "Form")
authorizing specified regular payroll deductions. Payroll deductions may be in
any amount specified by an employee, but the annual rate of deductions may not
exceed 20% of the employee's annual rate of base compensation (as defined by the
Committee) in effect at the time of the filing of the Form. All regular payroll
deductions shall be credited to a non-interest bearing account which the Company
shall establish in the name of each participant ("Payroll Deduction Account").
Eligible Employees who so elect to participate in the Plan are hereinafter
referred to as "Participating Employees."
All funds in Payroll Deduction Accounts may be used by the Company for
any corporate purpose, subject to the right of a Participating Employee to
withdraw at any time an amount equal to the balance accumulated in the
employee's Payroll Deduction Account. A Participating Employee may at any time,
but not more than once during any calendar quarter, increase or decrease the
employee's payroll deduction by filing a new Form which shall become effective
on the following payroll date.
6. Limitation on Number of Shares Which an Employee May Purchase. No
Eligible Employee may be granted an option under the Plan that permits the
employee to purchase stock under the Plan (and any other employee stock purchase
plans qualified under Section 423 of the Code and sponsored by the Company or
any of its subsidiaries) at a rate which exceeds $25,000 in fair market value of
such stock (determined at the time the option is granted) for each calendar year
in which any such option granted to such individual is outstanding at any time.
The foregoing limitation shall be interpreted by the Committee in
accordance with applicable rules and regulations issued under the Code.
7. Purchase Price. The Purchase Price for each share of common stock
shall be 85% (or such higher percentage as the Committee may determine from time
to time) of the fair market value of such share on the Investment Date as
hereinafter defined, provided that the Purchase Price shall in no event be less
than the par value of such share.
Fair market value on a given date means (i) if the common stock is
listed on a national securities exchange, the mean between the highest and
lowest sale prices reported as having occurred on the primary exchange on which
the common stock is listed and traded on the date prior to such date, or, if
there is no such sale on that date, then on the last preceding date on which
such a sale was reported; (ii) if the common stock is not listed on any national
securities
2
<PAGE>
exchange but is quoted in the National Market System of The Nasdaq Stock Market
on a last sale basis, the average between the high bid price and low ask price
reported on the date prior to such date, or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported; or (iii) if
the common stock is not listed on a national securities exchange nor quoted in
the National Market System of The Nasdaq Stock Market on a last sale basis, the
amount determined by the Committee to be the fair market value based upon a good
faith attempt to value the common stock accurately.
8. Method of Purchase and Investment Accounts. The last business day
of the third month in each calendar quarter commencing on or after the effective
date of the Plan shall be known as an Investment Date. Each Participating
Employee having funds in the employee's Payroll Deduction Account on an
Investment Date shall be deemed, without any further action, to have been
granted and have exercised such employee's right to purchase one or more full or
fractional shares which the funds in such employee's Payroll Deduction Account
could purchase at the Purchase Price on such Investment Date, subject to the
restrictions set forth in Section 6. All full or fractional shares so purchased
shall be credited to each Participating Employee and any balance in the
employee's Payroll Deduction Account, if any, shall be retained in such Account.
9. Rights as a Stockholder. Upon each Investment Date, or as soon
thereafter as practicable, a certificate for each share of common stock credited
to the employee will be forwarded to the employee or such full shares and
fractional shares will otherwise be credited to the employee. In the event a
Participating Employee terminates his or her Payroll Deduction Account, any
fractional shares credited to the Participating Employee will be paid to such
employee in cash.
10. Rights Not Transferable. Rights under the Plan are not transferable
by a Participating Employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
11. Adjustment for Changes in the Company's Stock. In the event of a
subdivision of outstanding shares of common stock, or the payment of a stock
dividend thereon, the number of shares reserved or authorized to be reserved
under the Plan shall be increased proportionately, and such other adjustment
shall be made as may be deemed necessary or equitable by the Committee. In the
event of any other change affecting the common stock, such adjustments shall be
made as may be deemed equitable by the Committee to give proper effect to such
event subject to the limitations of Section 424 of the Code.
12. Retirement, Termination and Death. In the event of a Participating
Employee's retirement or other termination of employment, or in the event that
the employee otherwise ceases to be an Eligible Employee, the amount in the
employee's Payroll Deduction Account shall be refunded to the employee and, in
the event of death, shall be paid to the employee's designated beneficiary under
the Plan.
3
<PAGE>
13. Amendment of the Plan. The board of directors may at any time amend
the Plan in any respect, except that, without the approval of the stockholders
of the Company, no amendment shall be made changing the number of shares to be
reserved under the Plan (other than as provided in Section 11) to an amount
which would require shareholder approval under the rules of the American Stock
Exchange or such other exchange or National Market System that the Company's
common stock is then listed.
14. Termination of the Plan. The Plan and all rights of employees
hereunder shall terminate:
(a) on the Investment Date that Participating Employees become
entitled to purchase a number of shares greater than the
number of reserved shares remaining available for purchase:
or
(b) at any time, at the discretion of the board of directors,
effective as of the completion of any calendar quarter.
In the event that the Plan terminates under circumstances described in
(a) above, reserved shares remaining as of the termination date shall be issued
to Participating Employees on a pro rata basis.
15. Effective Date of the Plan. The Plan shall become effective on
March 27, 2000.
16. Government and Other Regulations. The Plan, and the grant and
exercise of the rights to purchase shares hereunder, and the Company's
obligation to sell and deliver shares upon the exercise of rights to purchase
shares, shall be subject to all applicable Federal, State and foreign laws,
rules and regulations, and to such approvals by any regulatory or government
agency as may, in the opinion of counsel for the Committee, be required.
17. Tax. The Plan is not intended to comply with the provisions of
Section 423 of the Code and, as such, Participating Employees will not receive
favorable tax treatment provided under the Code when the common stock is sold.
4
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
VISION TWENTY-ONE, INC.,
OC ACQUISITION CORP.
AND
OPTICARE HEALTH SYSTEMS, INC.
DATED AS OF FEBRUARY 10, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS..............................................................................................2
SECTION 1.01 Certain Defined Terms......................................................................2
ARTICLE II
THE MERGER...............................................................................................8
SECTION 2.01 The Merger.................................................................................8
SECTION 2.02 Closing....................................................................................9
SECTION 2.03 Effective Time.............................................................................9
SECTION 2.04 Effect of the Merger.......................................................................9
SECTION 2.05 Articles of Incorporation; Bylaws; Directors and Officers of Surviving Corporation.........9
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES......................................................10
SECTION 3.01 Conversion of Shares......................................................................10
SECTION 3.02 Exchange of Shares Other than Treasury Shares.............................................11
SECTION 3.03 Stock Transfer Books......................................................................13
SECTION 3.04 No Fractional Share Certificates..........................................................14
SECTION 3.05 Options to Purchase Company Common Stock..................................................14
SECTION 3.06 Unvested Stock............................................................................16
SECTION 3.07 Certain Adjustments.......................................................................16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY...............................................................17
SECTION 4.01 Organization and Qualification; Subsidiaries..............................................17
SECTION 4.02 Articles of Incorporation and Bylaws......................................................17
SECTION 4.03 Capitalization............................................................................17
SECTION 4.04 Authority Relative to This Agreement......................................................19
SECTION 4.05 No Conflict; Required Filings and Consents................................................19
SECTION 4.06 Permits; Compliance with Laws.............................................................20
SECTION 4.07 SEC Filings; Financial Statements.........................................................21
SECTION 4.08 Absence of Certain Changes or Events......................................................21
SECTION 4.09 Employee Benefit Plans; Labor Matters.....................................................22
SECTION 4.10 Certain Tax Matters.......................................................................25
SECTION 4.11 Contracts.................................................................................25
SECTION 4.12 Litigation................................................................................27
SECTION 4.13 Environmental Matters.....................................................................27
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.14 Intellectual Property.....................................................................27
SECTION 4.15 Taxes.....................................................................................29
SECTION 4.16 Insurance.................................................................................30
SECTION 4.17 Properties................................................................................30
SECTION 4.18 Affiliates................................................................................31
SECTION 4.19 Opinion of Financial Advisor..............................................................31
SECTION 4.20 Brokers...................................................................................32
SECTION 4.21 Florida Business Corporation Law..........................................................32
SECTION 4.22 Business Activity Restriction.............................................................32
SECTION 4.23 Governmental Authorizations...............................................................32
SECTION 4.24 Gifts, Political Contributions, Unrecorded Funds..........................................33
SECTION 4.25 No Dissenters' Rights.....................................................................33
SECTION 4.26 Board Recommendation.......................................................................33
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT................................................................34
SECTION 5.01 Organization and Qualification; Subsidiaries..............................................34
SECTION 5.02 Certificate of Incorporation and Bylaws...................................................34
SECTION 5.03 Capitalization............................................................................35
SECTION 5.04 Authority Relative to This Agreement......................................................35
SECTION 5.05 No Conflict; Required Filings and Consents................................................36
SECTION 5.06 Permits; Compliance with Laws.............................................................36
SECTION 5.07 SEC Filings; Financial Statements.........................................................37
SECTION 5.08 Absence of Certain Changes or Events......................................................38
SECTION 5.09 Employee Benefit Plans; Labor Matters.....................................................39
SECTION 5.10 Certain Tax Matters.......................................................................40
SECTION 5.11 Contracts.................................................................................41
SECTION 5.12 Litigation................................................................................42
SECTION 5.13 Environmental Matters.....................................................................42
SECTION 5.14 Insurance.................................................................................42
SECTION 5.15 Properties................................................................................42
SECTION 5.16 Opinion of Financial Advisor..............................................................43
SECTION 5.17 Brokers...................................................................................43
SECTION 5.18 No Interested Shareholders................................................................43
SECTION 5.19 Governmental Authorizations...............................................................43
SECTION 5.20 Intellectual Property.....................................................................44
ARTICLE VI
COVENANTS...............................................................................................44
SECTION 6.01 Conduct of Business by Company Pending the Closing........................................44
SECTION 6.02 Notices of Certain Events.................................................................47
SECTION 6.03 Access to Information; Confidentiality....................................................47
SECTION 6.04 No Solicitation of Transactions...........................................................48
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6.05 Tax-Free Transaction......................................................................50
SECTION 6.06 Control of Operations.....................................................................50
SECTION 6.07 Further Action; Consents; Filings.........................................................50
SECTION 6.08 Additional Reports........................................................................51
SECTION 6.09 Conduct of Business by Parent.............................................................51
SECTION 6.10 Post Merger Directors and Officers........................................................52
SECTION 6.11 Bank Restructuring........................................................................53
SECTION 6.12 Disposition of Practices..................................................................53
SECTION 6.13 Financing Commitments.....................................................................54
SECTION 6.14 Standstill Agreement......................................................................54
SECTION 6.15 Voting....................................................................................54
SECTION 6.16 Waiver....................................................................................54
ARTICLE VII
ADDITIONAL AGREEMENTS...................................................................................55
SECTION 7.01 Registration Statement; Joint Proxy Statement.............................................55
SECTION 7.02 Stockholders' Meetings....................................................................57
SECTION 7.03 Affiliates................................................................................57
SECTION 7.04 Directors' and Officers' Indemnification and Insurance....................................57
SECTION 7.05 No Shelf Registration.....................................................................59
SECTION 7.06 Public Announcements......................................................................59
SECTION 7.07 AMEX Listing..............................................................................59
SECTION 7.08 Blue Sky..................................................................................59
SECTION 7.09 Acquisition of Company Capital Stock......................................................59
ARTICLE VIII
CONDITIONS TO THE MERGER................................................................................60
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger......................60
SECTION 8.02 Conditions to the Obligations of Company..................................................61
SECTION 8.03 Conditions to the Obligations of Parent...................................................62
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER.......................................................................63
SECTION 9.01 Termination...............................................................................63
SECTION 9.02 Effect of Termination.....................................................................65
SECTION 9.03 Amendment.................................................................................65
SECTION 9.04 Waiver....................................................................................66
SECTION 9.05 Termination Fee; Expenses.................................................................66
ARTICLE X
GENERAL PROVISIONS......................................................................................68
SECTION 10.01 Non-Survival of Representations and Warranties...........................................68
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 10.02 Notices..................................................................................68
SECTION 10.03 Severability.............................................................................69
SECTION 10.04 Assignment; Binding Effect; Benefit......................................................69
SECTION 10.05 Incorporation of Exhibits................................................................70
SECTION 10.06 Governing Law............................................................................70
SECTION 10.07 Waiver of Jury Trial.....................................................................70
SECTION 10.08 Headings; Interpretation.................................................................70
SECTION 10.09 Counterparts.............................................................................71
SECTION 10.10 Entire Agreement.........................................................................71
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of February
10, 2000 (as amended, supplemented or otherwise modified from time to time, this
"Agreement"), among OPTICARE HEALTH SYSTEMS, INC., a Delaware corporation
("Parent"), VISION TWENTY-ONE, INC., a Florida corporation ("Company"), and OC
ACQUISITION CORP., a Florida corporation and a direct wholly owned subsidiary of
Parent ("Merger Sub").
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent and Company have determined
that it is advisable and in the best interests of their respective companies and
stockholders to enter into a business combination by means of the merger of
Merger Sub with and into Company (the "Merger") and have approved and adopted
this Agreement;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain stockholders of
Company have granted an irrevocable proxy (referred to herein as the "Company
Stockholder Agreement") in the form attached hereto as Annex A;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Company to enter into this Agreement, certain stockholders of
Parent have granted an irrevocable proxy (referred to herein as the "Parent
Stockholder Agreement") in the form attached hereto as Annex B;
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Florida Business Corporation Act, as amended (the
"FBCA"), Parent will acquire all of the common stock of Company through the
merger of Merger Sub with and into Company; and
WHEREAS, for United States Federal income tax purposes, it is intended
that the Merger shall qualify as a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the "Code"), and that this Agreement shall
be, and hereby is, adopted as a plan of reorganization for purposes of Section
368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms
Unless the context otherwise requires, the following terms, when used
in this Agreement, shall have the respective meanings specified below (such
meanings to be equally applicable to the singular and plural forms of the terms
defined):
"Adjusted Financial Statements" shall mean the Company's month-ending
balance sheet and statements of income and changes in stockholders' equity as of
the latest practicable date no earlier than forty-five (45) days prior to the
Exchange Ratio Adjustment Date (defined below), which financial statements have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby; provided, however, that the financial statements
are subject to normal and recurring year-end adjustments and lack footnotes and
other presentation items. The "Exchange Ratio Adjustment Date" shall be the
fifth Business Day prior to the effective date of the Registration Statement or
such later date prior to the mailing of the Joint Proxy Statement as the parties
may mutually agree.
"Affiliate" shall mean, with respect to any person, any other person
that controls, is controlled by or is under common control with the first
person.
"Amex" shall mean the American Stock Exchange.
"ASCI Debt" shall mean the amount of "Contingent Consideration" payable
to American Surgicite Centers, Inc. pursuant to the Asset Purchase Agreement
dated as of September 1, 1998 among the Company and American Surgicite Centers,
Inc.
"Bank Austria" shall mean Bank Austria Creditanstaldt Corporate
Finance, Inc.
"Bank Austria Credit Agreement" shall mean the Amended and Restated
Loan and Security Agreement dated as of August 13, 1999 among the Parent,
certain of the Parent Subsidiaries and the lenders named therein, and Bank
Austria, as Agent.
"Blue Sky Laws" shall mean state securities or "blue sky" laws.
"Business Day" shall mean any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized by law or executive order to close in New York.
"Company Common Stock" shall mean the common stock, par value $.001 per
share, of the Company.
2
<PAGE>
"Company Disclosure Schedule" shall mean the disclosure schedule
delivered by Company to Parent prior to the execution of this Agreement and
forming a part hereof.
"Company Intellectual Property" shall mean all patents (including,
without limitation, all U.S. and foreign patents, patent applications, patent
disclosures, and any and all divisions, continuations, continuations-in-part,
reissues, re-examinations and extensions thereof), design rights, trademarks,
trade names and service marks (whether or not registered), trade dress, Internet
domain names, copyrights (whether or not registered) and any renewal rights
therefor, sui generis database rights, statistical models, technology,
inventions, supplier lists, trade secrets, know-how, computer software programs
or applications in both source and object code form, databases, technical
documentation of such software programs ("Technical Documentation"),
registrations and applications for any of the foregoing and all other tangible
or intangible proprietary information or materials that were material to
Company's business or are currently used in Company's business in any product,
technology or process (i) currently being or formerly manufactured, published or
marketed by Company or (ii) previously or currently under development for
possible future manufacturing, publication, marketing or other use by Company or
(iii) used by the Company.
"Company Material Adverse Effect" shall mean any change in or effect on
the business of Company and the Company Subsidiaries that, individually or in
the aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition or results of operations of Company and the
Company Subsidiaries, taken as a whole, except to the extent that any such
change in or effect results from (i) changes in general economic conditions or
changes affecting the industry generally in which Company operates (provided
that such changes do not affect Company in a materially disproportionate
manner); (ii) changes in trading prices for the Company's common stock; (iii)
disposition of Practices (as hereinafter defined), divestiture of Corporate
Optometry and termination of managed care contracts as specifically identified
on Schedule 4.08 of the Company Disclosure Schedule; (iv) ongoing professional
fees consistent with the level of professional fees incurred by the Company
during the period from January 10, 2000 to February 9, 2000; (v) Special Charges
that cause an adjustment to the Exchange Ratio per Section 3.01 hereto; and the
net writedown of certain assets associated with business operations which are
being discontinued.
"Company Stock Plans" shall mean the Company's 1996 and 1999 Stock
Incentive Plans for employees and the Company's Stock Option Plan for Affiliated
Professionals.
"Competing Transaction" shall mean any of the following involving
Company (other than the Merger):
(i) any merger, consolidation, share exchange, business
combination or other similar transaction;
(ii) any sale, exchange, transfer or other disposition of 33%
or more of the assets of the Company and/or its subsidiaries, taken as
a whole, in a single transaction or series of
3
<PAGE>
transactions, including, but not limited to, the assets or stock
relating to MEC Healthcare Inc. ("MEC") or the Company's laser vision
division;
(iii) any tender offer or exchange offer for 33% or more of
the outstanding voting securities of the Company or the filing of a
registration statement under the Securities Act in connection
therewith;
(iv) any person having acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed
that beneficially owns or has the right to acquire beneficial ownership
of, 33% or more of the outstanding voting securities of the Company
other than in connection with a Financing Transaction (as defined
below);
(v) any person having acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed
that beneficially owns or has the right to acquire beneficial ownership
of, 49% or more of the outstanding voting securities of the Company
from the Company or any of the Company's Affiliates in connection with
a transaction (a "Financing Transaction") with the purpose of the
Company obtaining bonafide financing without the investor making such
financing with the intent of exercising control over the Company and/or
management of the Company other than as may be typical of a lender in a
commercial financing transaction;
"Confidentiality Agreement" shall mean the confidentiality agreement,
dated November 24, 1999, between Parent and Company.
"Corporate Optometry" shall mean an optometric practice owned or
managed by the Company as set forth on Section 6.12 of the Company Disclosure
Schedule.
"$" shall mean United States Dollars.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Earn-out Agreement" shall mean any merger, purchase, sale or other
business combination agreement between the Company and one or more third parties
pursuant to which the Company is obligated to pay cash or issue shares of its
capital stock subsequent to the date hereof as more specifically set forth on
Attachment 4 to Schedule 4.03 of the Company Disclosure Schedule.
"Environmental Law" shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Material, as in effect as of the date hereof.
4
<PAGE>
"Environmental Permit" shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to any
applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Existing Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of July 1, 1998 among the Company, the banks party thereto
and Bank of Montreal, as Agent, as amended.
"Expenses" shall mean, with respect to any party hereto, all documented
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) and internal costs at commercially reasonable rates
incurred by such party or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and performance of its
obligations pursuant to this Agreement and the consummation of the Merger, the
preparation, printing, filing and mailing of the Registration Statement and the
Joint Proxy Statement, the solicitation of stockholder approvals, the filing of
HSR Act notice, if any, and all other matters related to the transactions
contemplated hereby and the closing of the Merger.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable statute and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Entity" shall mean any United States Federal, state or
local or any foreign governmental, regulatory or administrative authority,
agency or commission or any court, tribunal or arbitral body.
"Governmental Order" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
"Hazardous Material" shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, together with the rules and regulations promulgated
thereunder.
5
<PAGE>
"IRS" shall mean the United States Internal Revenue Service.
"Intangible Assets" shall have the conventional accounting meaning in
compliance with GAAP.
"Knowledge" an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of or
should reasonably be aware of such fact or other matter.
A Person (other than an individual) will be deemed to have `Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, manager, executor, or
trustee of such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter.
"Law" shall mean any Federal, state, foreign or local statute, law,
ordinance, regulation, rule, code, order, judgment, decree, other requirement or
rule of law of the United States or any other jurisdiction, and any other
similar act or law.
"Long-Term Indebtedness and Equivalents" shall mean, as reflected in
the Adjusted Financial Statements, the aggregate of (i) all of the Company's
long-term obligations, indebtedness or other liabilities of any kind or nature,
fixed or contingent, which in accordance with GAAP would be classified as a
long-term liability on the consolidated balance sheet of the Company and the
Company Subsidiaries, including, but not limited to obligations under capital
leases and deferred rent payables, (ii) the Purchase Adjustment Debt and (iii)
Special Charges, but excluding deferred tax liabilities.
"Merger" shall have the meaning ascribed to such term in the first
Whereas clause of this Agreement.
"NNM", shall mean the NASDAQ National Market.
"Net Debt Equivalents" or "NDE" shall mean, as reflected in the
Adjusted Financial Statements, all of the Company's Long-Term Indebtedness and
Equivalents less the Company's cash, including any cash equivalents or
marketable securities and as otherwise having the conventional meaning in
compliance with GAAP.
"Net Worth" shall mean, as reflected in the Adjusted Financial
Statements, total shareholder's equity (including capital stock, additional
paid-in capital and retained earnings after deducting treasury stock) which
would appear on the balance sheet of the Company and the Company's Subsidiaries
prepared on a consolidated basis in accordance with GAAP.
"Ophthalmologist/Optometrist Employee" shall mean a licensed
ophthalmologist or optometrist employed by the Company or the Company
Subsidiaries or the Parent or the Parent
6
<PAGE>
Subsidiaries, as the case may be, or a professional corporation to which the
Company or the Company Subsidiaries or the Parent or the Parent Subsidiaries as
the case may be, provides services.
"Ophthalmology and Optometry Practices" shall mean any ophthalmology
and/or optometry practices owned or managed by the Company as set forth on
Section 6.12 of the Company Disclosure Schedule.
"Parent Common Stock" shall mean the common stock, par value $.001 per
share, of the Parent.
"Parent Disclosure Schedule" shall mean the disclosure schedule
delivered by Parent to Company prior to the execution of this Agreement and
forming a part hereof.
"Parent Material Adverse Effect" shall mean any change in or effect on
the business of Parent and the Parent Subsidiaries that, individually or in the
aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition or results of operations of Parent and the
Parent Subsidiaries, taken as a whole, except to the extent that any such change
in or effect results from (i) changes in general economic conditions or changes
affecting the industry generally in which Parent operates (provided that such
changes do not affect Parent in a materially disproportionate manner) and (ii)
any changes in the trading price of Parent Common Stock.
"Parent Stock Plans" shall mean Parent's Performance Stock Program and
the Employee Stock Purchase Plan.
"Person" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, limited liability partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
"Purchase Adjustment Debt" shall mean the amount which is claimed by
Eye Care Centers of America, Inc. to be owed to it through purchase price
adjustments and indemnities pursuant to the terms of the Asset Purchase
Agreement dated July 7, 1999 among the Company and Eye Care Centers of America,
Inc.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Special Charges" shall mean, as reflected in the balance sheet of the
Adjusted Financial Statements, the aggregate liability of: any one time charges
and accruals (extraordinary or otherwise) relating to matters outside of the
ordinary course of business, including but not limited to, layoffs
7
<PAGE>
and severance (including those individuals appropriately identified on Company
Disclosure Schedule 4.09), one time lease shutdowns, restructuring charges, the
net writedown of certain assets associated with business operations which are
being discontinued, the maximum amount of cash payable by the Company, or the
Parent after the Effective Time, as the case may be, which is reasonably likely
to be paid pursuant to the ASCI Debt and the Earn-out Agreements as of the
Exchange Ratio Adjustment Date, the Additional Premium Amount or the Excess
Projected Cumulative Amount (as defined in Section 7.04 (d)), as the case may
be, and any accrued and unpaid expenses incurred by the Company in connection
with obtaining or attempting to obtain such third party consent as agreed upon
by the Parent and the Company.
"Subsidiary" shall mean, with respect to any person, any corporation,
partnership, limited partnership, limited liability company, limited liability
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any other subsidiary of such person) owns,
directly or indirectly, a majority of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"Tangible Net Worth" or "TNW" shall mean, as reflected in the Adjusted
Financial Statements, the Company's Net Worth less Intangible Assets.
"Tax" shall mean (i) any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Entity or taxing authority, including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value-added or gains taxes; license,
registration and documentation fees; and customers' duties, tariffs and similar
charges; (ii) any liability for the payment of any amounts of the type described
in (i) as a result of being a member of an affiliated, combined, consolidated or
unitary group for any taxable period; and (iii) any liability for the payment of
amounts of the type described in (i) or (ii) as a result of being a transferee
of, or a successor in interest to, any Person or as a result of an express or
implied obligation to indemnify any person.
"Tax Return" shall mean any return, statement or form (including,
without limitation, any estimated tax reports or return, withholding tax reports
or return and information report or return) required to be filed with respect to
any Taxes.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger
8
<PAGE>
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the FBCA, at the Effective Time (as defined in
Section 2.03), Merger Sub shall be merged with and into Company. As a result of
the Merger, the separate corporate existence of Merger Sub shall cease and
Company shall continue as the surviving corporation of the Merger as a wholly
owned subsidiary of Parent (the "Surviving Corporation").
SECTION 2.02 Closing
Unless this Agreement shall have been terminated and the Merger herein
contemplated shall have been abandoned pursuant to Section 9.01 and subject to
the satisfaction or waiver of the conditions set forth in Article VIII, the
consummation of the Merger shall take place as promptly as practicable (and in
any event within three Business Days) after satisfaction or waiver of the
conditions set forth in Article VIII, at a closing (the "Closing") to be held at
the offices of Kane Kessler, P.C., 1350 Avenue of the Americas, New York, New
York 10019, unless another date, time or place is mutually agreed to by Parent
and Company.
SECTION 2.03 Effective Time
At and after the time of the Closing, the parties shall cause the
Merger to be consummated by filing the articles of merger (the "Certificate of
Merger") with the Department of State of the State of Florida in such form as
required by, and executed in accordance with the relevant provisions of, the
FBCA (the date and time of such filing, or such later date and time as may be
set forth therein, being the "Effective Time").
SECTION 2.04 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of the FBCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall vest in
Company as the Surviving Corporation, and all debts, liabilities and duties of
Company and Merger Sub shall become the debts, liabilities and duties of Company
as the Surviving Corporation.
SECTION 2.05 Articles of Incorporation; Bylaws; Directors and Officers
of Surviving Corporation
Unless otherwise agreed by Parent and Company before the Effective
Time, at the Effective Time:
(a) the Articles of Incorporation and the Bylaws of Merger Sub
in effect immediately prior to the Effective Time shall be the Articles
of Incorporation and the Bylaws of the Surviving Corporation, until
thereafter amended as provided by Law and such Article of
9
<PAGE>
Incorporation or Bylaws; provided, however, that Article I of the
Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is " "
and the bylaws shall be amended to reflect such name change;
(b) the officers of Merger Sub immediately prior to the
Effective Time shall serve in their respective offices of the Surviving
Corporation from and after the Effective Time, in each case until their
successors are elected or appointed and qualified or until their
resignation or removal; and
(c) the directors of Merger Sub immediately prior to the
Effective Time shall serve as the directors of the Surviving
Corporation from and after the Effective Time, in each case until their
successors are elected or appointed and qualified or until their
resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Conversion of Shares
(a) At the Effective Time, by virtue of the Merger, and
without any action on the part of Parent, Merger Sub, Company or the
holders of any of the following securities:
(i) each share of Common Stock, $.001 par value, of Company
("Company Common Stock") issued and outstanding immediately before the
Effective Time (excluding those held in the treasury of Company and
those owned by any wholly owned subsidiary of Company) and all rights
in respect thereof, shall, forthwith cease to exist and be converted
into and become exchangeable for the right to receive 0.402 shares (the
"Exchange Ratio") of common stock, $.001 par value, of Parent ("Parent
Common Stock");
(ii) each share of Company Common Stock held in the treasury
of Company or owned by any wholly owned subsidiary of Company
immediately prior to the Effective Time shall be canceled and retired
and no shares of stock or other securities of Parent, the Surviving
Corporation or any other corporation shall be issuable, and no payment
or other consideration shall be made, with respect thereto; and
(iii) each issued and outstanding share of capital stock of
Merger Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) notwithstanding anything to the contrary above, the
Exchange Ratio shall be
10
<PAGE>
adjusted and recalculated as of the Exchange Ratio Adjustment Date in
accordance with the following formula:
Exchange Ratio = 6,000,000 - (.25 (NDE-$54 Million)) + (.125(TNW-($56) Million))
----------------------------------------------------------------
X
where X represents the number of outstanding shares of Company Common
Stock as of the Exchange Ratio Adjustment Date.
(c) The Exchange Ratio shall be adjusted downward to account
for the maximum amount of shares of Company Common Stock, or Parent
Common Stock after the Effective Time, as the case may be, which are
reasonably expected to be issued pursuant to the Earn-out Agreements as
of the Exchange Ratio Adjustment Date, as mutually agreed upon by the
Parent and the Company (the "Earn-out Stock Amount").
(d) The Adjusted Financial Statements and/or the Earn-out
Stock Amount shall be reasonably satisfactory to Parent. Upon receipt
by Parent of the Adjusted Financial Statements and/or the Earn-out
Stock Amount from the Company, Parent shall accept or reject the
Adjusted Financial Statements and/or the Earn-out Stock Amount by
written notice to the Company within three (3) Business Days
thereafter; failure to reject the Adjusted Financial Statements and/or
Earn-out Stock Amount, as applicable, within such period shall be
deemed conclusive acceptance of the Adjusted Financial Statements
and/or the Earn-out Stock Amount, as applicable. If Parent disputes the
Adjusted Financial Statements and/or the Earn-out Stock Amount, the
parties will attempt to resolve their differences jointly and the
Company shall provide Parent reasonable access to its appropriate
records, including but not limited to, its work papers, but if no
resolution is reached within three (3) Business Days, then the parties
agree to submit the disputed items to an independent "Big 6" accounting
firm as may be mutually agreed upon by the respective accounting firms
of Parent and the Company, for determination within ten (10) Business
Days, which determination shall be conclusive for the purposes of this
Agreement. The cost of such mutually agreed accounting firm's
determination shall be borne equally by the Company and Parent.
SECTION 3.02 Exchange of Shares Other than Treasury Shares
(a) Exchange Agent. As of the Effective Time, Parent shall enter into
an agreement with a bank or trust company to act as exchange agent for the
Merger (the "Exchange Agent") as may be designated by Parent.
(b) Parent to Provide Common Stock and Cash. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for the
benefit of the holder of Company Common Stock: (i) Certificates of Parent Common
Stock ("Parent Certificates") representing the number of whole shares of Parent
Common Stock issuable pursuant to Section 3.01(a) in exchange for shares of
Company Common Stock outstanding immediately prior to the Effective Time; (ii)
sufficient
11
<PAGE>
funds to permit payment in lieu of fractional shares pursuant to Section 3.04
and (iii) any dividends or distributions to which holders of shares of Company
Common Stock may be entitled pursuant to Section 3.07.
(c) Exchange Procedures. The Exchange Agent shall mail to each holder
of record of certificates of Company Common Stock ("Company Certificates"),
whose shares were converted into the right to receive shares of Parent Common
Stock (and cash in lieu of fractional shares pursuant to Section 3.04) promptly
after the Effective Time (and in any event no later than three Business Days
after the later to occur of the Effective Time and receipt by Parent of a
complete list from the Company of the names and addresses of its holders of
record): (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon receipt of the Company Certificates by the Exchange Agent, and shall
be in such form and have such other provisions as Parent may reasonably
specify); and (ii) instructions for use in effecting the surrender of the
Company Certificates in exchange for Parent Certificates (and cash in lieu of
fractional shares). Upon surrender of a Company Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed, and such other documents as may be reasonably required by the Exchange
Agent, the holder of such Company Certificate shall be entitled to receive in
exchange therefor a Parent Certificate representing the number of whole shares
of Parent Common Stock that such holder has the right to receive pursuant to
this Article III and payment of cash in lieu of fractional shares which such
holder has the right to receive pursuant to Section 3.04, and the Company
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Company Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes other than the payment of dividends
and distributions, to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Common Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 3.04.
Notwithstanding any other provision of this Agreement, no interest will be paid
or will accrue on any cash payable to holders of Company Certificates pursuant
to the provisions of this Article III.
(d) Lost, Stolen or Destroyed Company Certificates. In the event any
Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Company
Certificates, upon the making of an affidavit of that fact by the holder
thereof, a Parent Certificate representing such shares of Parent Common Stock
(and cash in lieu of fractional shares) as may be required pursuant to this
Article III; provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Company Certificates to indemnify Parent against any claim
that may be made against Parent, the Surviving Corporation or the Exchange Agent
with respect to the Company Certificates alleged to have been lost, stolen or
destroyed.
(e) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock with a record date after
the Effective Time will be paid to the
12
<PAGE>
holder of any unsurrendered Company Certificate with respect to the shares of
Parent Common Stock represented thereby until the holder of record of such
Company Certificate shall surrender such Company Certificate. Subject to the
effect of applicable escheat or similar laws, following surrender of any such
Company Certificate, there shall be paid to the record holder of the Parent
Certificates issued in exchange therefor, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a record
date after the Effective Time theretofore payable (but for the provisions of
this Section 3.02(e)) with respect to such shares of Parent Common Stock.
(f) Transfer of Ownership. If any Parent Certificate is to be issued in
a name other than that in which the Company Certificate surrendered in exchange
therefor is registered, it will be a condition of the issuance thereof that the
Company Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a Parent Certificate for shares of Parent
Common Stock in any name other than that of the registered holder of the Company
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(g) Termination of Exchange Agent Funding. Any portion of funds
(including any interest earned thereon) or Parent Certificates held by the
Exchange Agent which have not been delivered to holders of Company Certificates
pursuant to this Article III within six months after the Effective Time shall
promptly be paid or delivered, as appropriate, to Parent, and thereafter holders
of Company Certificates who have not theretofore complied with the exchange
procedures outlined in and contemplated by this Section 3.02 shall thereafter
look only to Parent (subject to abandoned property, escheat and similar laws)
only as general creditors thereof for their claim for shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions (with a record date after the Effective Time) with
respect to Parent Common Stock to which they are entitled.
(h) No Liability. Notwithstanding anything to the contrary in this
Section 3.02, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person in respect of any shares of Parent Common
Stock or cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(i) Expenses of Exchange Agent. Parent shall pay all charges and
expenses of the Exchange Agent incurred solely in connection with the
transactions contemplated by this Agreement, to the extent of $8,500, with any
and all charges and expenses above such amount being borne by the Company.
SECTION 3.03 Stock Transfer Books
(a) At the Effective Time, the stock transfer books of Company shall
each be closed, and there shall be no further registration of transfers of
shares of
13
<PAGE>
Company Common Stock thereafter on the records of any such stock transfer books.
In the event of a transfer of ownership of shares of Company Common Stock that
is not registered in the stock transfer records of Company at the Effective
Time, a certificate or certificates representing the number of full shares of
Parent Common Stock into which such shares of Company Common Stock shall have
been converted shall be issued to the transferee together with a cash payment in
lieu of fractional shares, if any, in accordance with Section 3.04 hereof, and a
cash payment in the amount of dividends, if any, in accordance with Section
3.02(e) hereof, if the certificate or certificates representing such shares of
Company Common Stock is or are surrendered as provided in Section 3.02(c)
hereof, accompanied by all documents required to evidence and effect such
transfer and by evidence of payment of any applicable stock transfer tax.
(b) Notwithstanding anything to the contrary herein, certificates
surrendered for exchange by any person constituting an affiliate of Company
shall not be exchanged until Parent shall have received from such person an
affiliate letter as provided in Section 7.03.
SECTION 3.04 No Fractional Share Certificates
No scrip or fractional share Parent Certificate shall be issued upon
the surrender for exchange of Company Certificates, and an outstanding
fractional share interest shall not entitle the owner thereof to vote, to
receive dividends or to any rights of a stockholder of Parent or of Surviving
Corporation with respect to such fractional share interest. As promptly as
practicable following the Effective Time, Parent shall deposit with the Exchange
Agent an amount in cash sufficient for the Exchange Agent to pay each holder of
Company Common Stock an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such holder would
otherwise be entitled (after taking into account all shares of Company Common
Stock held at the Effective Time by such holder) by (ii) the closing price for a
share of Parent Common Stock on the American Stock Exchange (the "AMEX") on the
last Business Day prior to the Effective Time. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of Company
Common Stock with respect to any fractional share interests, the Exchange Agent
shall make available such amounts, net of any required withholding Taxes, to
such holders of Company Common Stock, subject to and in accordance with the
terms of Section 3.02 hereof.
SECTION 3.05 Options to Purchase Company Common Stock
(a) At or prior to the Effective Time, each of Company and Parent shall
take all action necessary to cause as of the Effective Time the assumption by
Parent of, or the reissuance by Parent of substitutes for, all of the following
which remain outstanding as of the Effective Time: (i) the options to purchase
Company Common Stock listed in the Company Disclosure Schedule, whether vested
or unvested, and issued under Company's Stock Plans; (ii) options to purchase
Company Common Stock listed in the Company Disclosure Schedule pursuant to
option agreements outside of the Company's Stock Plans; and (iii) the warrants
to purchase Company Stock listed in the Company Disclosure Schedule and issued
pursuant to warrant agreements, (collectively, the "Outstanding Options and
Warrants," and each an "Outstanding Option" or an "Outstanding Warrant"). To the
fullest extent permitted under applicable law and the applicable stock option
14
<PAGE>
agreements, the Company Stock Plans and the warrant agreements, each of the
Outstanding Options and Outstanding Warrants shall be exchanged or substituted
without any action on the part of the holder thereof into an option or warrant
to purchase shares of Company Common Stock as of the Effective Time. The number
of shares of Parent Common Stock that the holder of an assumed or substituted
Outstanding Option or Outstanding Warrant shall be entitled to receive upon the
exercise of such option or warrant shall be the same number of shares of Company
Common Stock as the holder of such Outstanding Option or Outstanding Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such option or warrant in full immediately prior to the Effective
Time. The price per share of Parent Common Stock after the Effective Time shall
be equal to (x) the aggregate exercise price for the shares of Company Common
Stock otherwise purchasable pursuant to such Outstanding Option or Outstanding
Warrant divided by (y) the Exchange Ratio. Other than as set forth in the
Outstanding Options and Warrants or as contemplated by this Agreement, the
assumption and substitution of options and warrants as provided herein shall not
give the holders of such options and warrants additional benefits or additional
vesting rights which they did not have immediately prior to the Effective Time
or relieve the holders of any obligations or restrictions applicable to their
options and warrants or the shares obtainable upon exercise of their options and
warrants. Only whole shares of Company Common Stock shall be issued upon
exercise of any Outstanding Option or Outstanding Warrant, and no certificates
or scrip representing fractional shares of Company Common Stock and no cash in
lieu of fractional shares shall be issued upon such exercise. All fractional
shares of Company Common Stock which a holder of any Outstanding Option or
Outstanding Warrant would otherwise be entitled to receive upon exercise thereof
shall be aggregated at the time of such exercise. If a fractional share results
from such aggregation, in lieu thereof such fraction shall be rounded up to one
whole share of Company Common Stock if it is one-half or larger and shall be
rounded down to zero and canceled without any payment or distribution with
respect thereto if it is less than one-half. Prior to the Effective Time,
Company and Parent shall take such additional actions, if any, as are necessary
under applicable law and the applicable agreements and the Company Stock Plans
to assure that each Outstanding Option and Outstanding Warrant shall, from and
after the Effective Time, represent only the right to purchase, upon exercise,
whole shares of Company Common Stock. Prior to the Effective Time, the Board of
Directors of the Company shall make the determination that neither the Merger
nor any of the other transactions contemplated by this Agreement shall be deemed
a "Change in Control" for purposes of each of the employment agreements entered
into by the Company other than the employment agreements set forth on Section
3.05 of the Company Disclosure Schedule.
Except as otherwise specifically identified in Section 3.05 of the
Company Disclosure Schedule, the assumption of the Outstanding Options and
Warrants in the Merger and their conversion into options and warrants for Parent
Common Stock will not result in any accelerated vesting of those options or
warrants or the shares purchasable thereunder and the vesting schedule in effect
for such Outstanding Options and Warrants immediately prior to the Effective
Time shall remain in full force after the assumption thereof by Parent.
It is the Parent's intention to roll such converted Outstanding Options
into options to purchase Parent Common Stock, as described above, pursuant to
either the Parent's Performance
15
<PAGE>
Stock Program or, at Parent's discretion or in the event that Parent is unable
to roll such converted options into the Performance Stock Program, then Parent
will assume the Company Stock Plans. Upon such conversion, any options granted
under the Performance Stock Program to the former holders of Outstanding Options
pursuant to the Company Stock Plans shall, except to the extent provided above,
in all respects be subject to the terms, provisions and conditions of the
Performance Stock Program and the standard form of stock option agreement
relating to such Performance Stock Program except where the terms of the
Performance Stock Program are contrary to the rights of an option holder,
whereupon in such instance the option holder will retain his or her rights to
such contrary terms; and provided further, that such holders shall be deemed to
have been granted such options as of the date the original options were granted
under the Company Stock Plans.
(b) As soon as practicable after the Effective Time, Parent shall file
a registration statement on Form S-8 or a successor form, under the Securities
Act with respect to the shares of Parent Common Stock subject to the Outstanding
Options, to the extent that Form S-8 or successor form, is available to register
the Outstanding Options, and shall use its reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as the Outstanding Options remain outstanding.
SECTION 3.06 Unvested Stock
At the Effective Time, any unvested shares of Company Common Stock,
including, but not limited to, any restricted stock, awarded to employees,
directors or consultants pursuant to any of the Company's plans or arrangements
and outstanding immediately prior to the Effective Time shall be converted into
unvested shares of Parent Common Stock in accordance with the Exchange Ratio and
shall remain subject to the same terms, restrictions and vesting schedule as in
effect immediately prior to the Effective Time. All outstanding rights which
Company may hold immediately prior to the Effective Time to repurchase unvested
shares of Company Common Stock shall be assigned to the Parent in the Merger and
shall thereafter be exercisable by Parent upon the same terms and conditions in
effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to such rights and the purchase price payable per share
shall be adjusted to reflect the Exchange Ratio.
SECTION 3.07 Certain Adjustments
If between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or the number of shares of Company Common Stock on a
fully diluted basis is in excess of that specified in Section 4.03 and disclosed
in Section 4.03 of the Company Disclosure Schedule (regardless of whether such
excess is a result of an additional issuance of capital stock or a correction to
such Sections), then the Exchange Ratio established pursuant to the provisions
of
16
<PAGE>
Section 3.01 shall be adjusted accordingly to provide to each of Parent, on the
one hand, and the holders of Company Common Stock in the aggregate, on the other
hand, the same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange, dividend or
increase.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent, subject to the
exceptions specifically disclosed in writing in the Company Disclosure Schedule,
all such exceptions to be referenced to a specific representation set forth in
this Article IV or to otherwise be clearly applicable to the representations
hereof not specifically referenced, that (it being understood that for purposes
of this Article IV, unless the context otherwise requires, the term Company
shall be deemed to include all of the Company's Subsidiaries:
SECTION 4.01 Organization and Qualification; Subsidiaries
(a) Company and each directly and indirectly owned subsidiary of
Company (the "Company Subsidiaries") has been duly organized and is validly
existing and in good standing (to the extent applicable) under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Except as
set forth in Section 4.01 of the Company Disclosure Schedule, Company and each
Company Subsidiary is duly qualified or licensed to do business, and is in good
standing (to the extent applicable), in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failure to be
so qualified or licensed and in good standing that could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
(b) Section 4.01 of the Company Disclosure Schedule sets forth, as of
the date of this Agreement, a true and complete list of each Company Subsidiary,
together with (i) the jurisdiction of incorporation or organization of each
Company Subsidiary and the percentage of each Company Subsidiary's outstanding
capital stock or other equity interests owned by Company or another Company
Subsidiary and (ii) an indication of whether each Company Subsidiary is a
"Significant Subsidiary" as defined in Regulation S-X under the Exchange Act.
Except as set forth in Section 4.01 of the Company Disclosure Schedule, neither
Company nor any Company Subsidiary owns an equity interest in any partnership or
joint venture arrangement or other business entity.
SECTION 4.02 Articles of Incorporation and Bylaws
The copies of Company's articles of incorporation and bylaws, as
amended to date, previously provided to Parent by Company are true, complete and
correct copies thereof. Such articles of
17
<PAGE>
incorporation and bylaws are in full force and effect. Company is not in
violation of any of the provisions of its certificate of incorporation or
bylaws.
SECTION 4.03 Capitalization
(a) The authorized capital stock of Company consists of 50,000,000
shares of Company Common Stock and 10,000,000 shares of preferred stock
("Company Preferred Stock"). As of the date hereof, (i) 14,939,407 shares of
Company Common Stock are issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) no shares of Company Common Stock are
held in the treasury of Company, (iii) no shares of Company Common Stock are
held by Company Subsidiaries, (iv) 2,400,000 shares of Company Common Stock are
reserved for future issuance pursuant to the Company Stock Plans or pursuant to
option agreements outside of the Company Stock Plans (collectively, the "Company
Stock Options"), of which, as of December 31,1999, 921,977 and 1,035,146 shares
of Company Common Stock were reserved for future issuance pursuant to unvested,
outstanding and vested, outstanding, unexercised Company Stock Options,
respectively, and (v) no shares of Company Preferred Stock are outstanding. The
name of each holder of a Company Stock Option or a warrant, the grant date of
each Company Stock Option and warrant, and the number of shares of Company
Common Stock for which each Company Stock Option or warrant, as the case may be,
is exercisable and the exercise price of each Company Stock Option or warrant,
as the case may be, and the Company Stock Plans or other agreement that such
Company Stock Options or warrants are issuable under, are set forth in Section
4.03 of the Company Disclosure Schedule. Except for (i) shares of Company Common
Stock issuable pursuant Company Stock Plans, and (ii) shares issuable as
specifically listed and indicated on Schedule 4.03 of the Company Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character obligating Company or any Company
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, Company or any Company Subsidiary. All shares of Company Common
Stock subject to issuance as aforesaid, upon issuance prior to the Effective
Time on the terms and conditions specified in the instruments pursuant to which
they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.03 of the Company's Disclosure
Schedule, there are no outstanding contractual obligations of Company or any
Company Subsidiary to repurchase, redeem or otherwise acquire any shares of
Company Common Stock or any capital stock of any Company Subsidiary. Except as
set forth in Section 4.03 of the Company's Disclosure Schedule, each outstanding
share of capital stock of each Company Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and each such share owned by Company or
another Company Subsidiary is free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
Company's or such other Company Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever. There are no outstanding contractual
obligations of Company or any Company Subsidiary to provide funds to, guarantee
indebtedness of, or make any material investment (in the form of a loan, capital
contribution or otherwise) in, any Company Subsidiary or any other person,
except as set forth in Section 4.03 of the Company Disclosure Schedule.
18
<PAGE>
(b) Schedule 4.03 correctly and completely sets forth each agreement or
obligation of the Company and/or any Company Subsidiary to issue additional
shares of Company Common Stock after the date hereof if certain conditions are
fulfilled, and correctly and completely sets forth the maximum number of shares
of Company Common Stock issuable with respect to each business combination or
otherwise listed in Schedule 4.03 of the Company Disclosure Schedule and any
registration rights related to such shares. Such shares are hereinafter called
"Earn-out Company Shares."
(c) Provided that the Merger becomes effective, the terms of each such
business combination require each person entitled to receive Earn-out Shares to
accept in lieu of Company Common Stock the number of shares of Parent Common
Stock that would be issuable in the Merger if such Company Common Stock were
outstanding immediately prior to the Effective time.
(d) The terms of each such business combination require each person
entitled to receive Earn-out Shares to accept Earn-out Shares which have not
been registered under the Securities Act and further obligate such persons not
to sell, transfer, pledge, hypothecate or otherwise create any interest in the
Earn-out Shares without such registration or in a transaction except from the
registration requirements of the Securities Act and applicable state securities
laws.
(e) The consummation of the Merger will not trigger any anti-dilution
rights or price adjustment in connection with any Outstanding Options and/or
Warrants.
SECTION 4.04 Authority Relative to This Agreement
Company has all necessary corporate power and authority to execute and
deliver this Agreement to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement by Company and the consummation by Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby and thereby (other than, with
respect to the Merger, the approval of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote with
respect thereto at the Company Stockholders' Meeting (as defined in Section
7.01), and the filing and recordation of the Certificate of Merger as required
by the FBCA). This Agreement has been duly executed and delivered by Company
and, assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute legal, valid and binding obligations of Company,
enforceable against Company in accordance with their terms, subject to the
effect of any applicable bankruptcy, moratorium, insolvency, reorganization or
other similar law affecting the enforceability of creditors' rights generally
and to the effect of general principles of equity which may limit the
availability of remedies (whether in a proceeding at law or in equity).
SECTION 4.05 No Conflict; Required Filings and Consents
19
<PAGE>
(a) Except as set forth in Section 4.05 of the Company Disclosure
Schedule, the execution and delivery of this Agreement by Company do not, and
the performance by Company of its obligations hereunder and thereunder and the
consummation of the Merger will not, (i) conflict with or violate any provision
of the certificate of incorporation or bylaws of Company or any equivalent
organizational documents of any Company Subsidiary, (ii) assuming that all
filings and notifications described in Section 4.05(b) have been made and, to
the extent applicable approved, conflict with, violate, or constitute a default
in respect of any Governmental Authorization or Law applicable to Company or any
Company Subsidiary or by which any material property or material asset of
Company or any Company Subsidiary is bound or affected or (iii) result in any
breach of or constitute a material default (or an event which with the giving of
notice or lapse of time or both could reasonably be expected to become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any material property or asset of Company or any Company
Subsidiary pursuant to, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, Company Permit (as defined below), franchise or other
instrument or obligation.
(b) Except as set forth in Section 4.05 of the Company's Disclosure
Schedule, the execution and delivery of this Agreement by Company do not, and
the performance by Company of its obligations hereunder and the consummation of
the Merger will not, require any material consent, approval, authorization or
permit of, or filing by Company with or notification by Company to, any
Governmental Entity, except pursuant to applicable requirements of the Exchange
Act, the Securities Act, Blue Sky Laws, the rules and regulations of the NNM,
state takeover laws, the premerger notification requirements of the HSR Act, and
the filing and recordation of the Certificate of Merger as required by the FBCA.
SECTION 4.06 Permits; Compliance with Laws
(a) Except as set forth in Section 4.06 of the Company Disclosure
Schedule, Company and the Company Subsidiaries are in possession of all
franchises, grants, authorizations, licenses, establishment registrations,
product listings, permits, easements, variances, exceptions, consents,
certificates, identification and registration numbers, approvals and orders of
any Governmental Entity necessary for Company or any Company Subsidiary to own,
lease and operate its properties or to offer or perform its services or to
develop, produce, store, distribute and market its products or otherwise to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), except for Company Permits which could not reasonably be expected to
have a Company Material Adverse Effect, and, as of the date of this Agreement,
none of the Company Permits has been suspended or canceled nor is any such
suspension or cancellation pending or, to the knowledge of Company, threatened.
(b) Neither Company nor any Company Subsidiary is in conflict with, or
in default or violation of, (i) any Law applicable to Company or any Company
Subsidiary or by which any property or asset of Company or any Company
Subsidiary is bound or affected or (ii) any Company Permits, except for
conflicts, defaults or violations which could not reasonably be expected to have
20
<PAGE>
a Company Material Adverse Effect. Section 4.06 of the Company Disclosure
Schedule sets forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the knowledge of Company, threatened
against Company or any Company Subsidiary or to the Company's knowledge, without
any independent investigation, pending or threatened against any
Ophthalmologist/Optometrist Employee, that could reasonably be expected to
result in the suspension or cancellation of any other material Company Permit.
Since January 1, 1998, neither Company nor any Company Subsidiary has received
from any Governmental Entity any written notification with respect to possible
conflicts, defaults or violations of Laws.
SECTION 4.07 SEC Filings; Financial Statements
(a) Except as disclosed in Section 4.07 of the Company Disclosure
Schedule, Company has timely filed all forms, reports, statements and documents
required to be filed by it (A) with the SEC and the NNM since November 1, 1996
(collectively, together with any such forms, reports, statements and documents
Company may file subsequent to the date hereof until the Closing, the "Company
Reports") and (B) with any other Governmental Entities. Except as disclosed in
Section 4.07 of the Company Disclosure Schedule, each Company Report (i) was
prepared in accordance with the requirements of the Securities Act, the Exchange
Act or the rules and regulations of the NNM, as the case may be, in
substantially all respects and (ii) did not at the time it was filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
Except as disclosed in Section 4.07 of the Company Disclosure Schedule, each
form, report, statement and document referred to in clause (B) of this paragraph
was prepared in all material respects in accordance with the requirements of
applicable Law. No Company Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or required to file any form, report or other
document with the SEC, the NNM, any other stock exchange or any other comparable
Governmental Entity.
(b) Except as disclosed in Section 4.07 of the Company Disclosure
Schedule, each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company Reports was prepared in
accordance with U.S. GAAP (except as may be permitted by Form 10-Q under the
Exchange Act) applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly, in
all material respects, the consolidated financial position of Company and the
consolidated Company Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal and recurring
immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of Company and the Company Subsidiaries as reported
in the Company Reports, including the notes thereto, none of Company or any
Company Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in accordance with
U.S. GAAP, except for immaterial
21
<PAGE>
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since December 31, 1998, and except as set forth
in Section 4.07 of the Company Disclosure Schedule.
SECTION 4.08 Absence of Certain Changes or Events
Except as set forth in Section 4.08 of the Company Disclosure
Schedules, since September 30, 1999, Company and the Company Subsidiaries have
conducted their businesses only in the ordinary course consistent with past
practice and, since such date, there has not been (i) any material changes in or
effect on the business, assets, liabilities, financial condition or results of
operations of Company or the Company Subsidiaries, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of
Company's obligations pursuant to this Agreement and the consummation of the
Merger by Company, (iii) any material change by Company in its accounting
methods, principles or practices, (iv) any declaration, setting aside or payment
of any dividend or distribution in respect of the shares of Company Common Stock
or any redemption, purchase or other acquisition of any of Company's securities,
(v) except for changes in the ordinary course of business consistent with past
practice, any increase in the compensation or benefits or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting or repricing
of stock options, stock appreciation rights, performance awards or restricted
stock awards), stock purchase or other employee benefit plan, or any other
increase in the compensation payable or to become payable to any employees,
officers, consultants or directors of Company or any Company Subsidiary, (vi)
any issuance or sale of any stock, notes, bonds or other securities other than
pursuant to the exercise of outstanding securities, or entering into any
agreement with respect thereto, or the issuances of options under the Company
Stock Plans, (vii) any amendment to the Company's certificate of incorporation
or bylaws, (viii) other than in the ordinary course of business consistent with
past practice, any (x) purchase, sale, assignment or transfer of any material
assets, (y) mortgage, pledge or existence of any lien, encumbrance or charge on
any material assets or properties, tangible or intangible except for liens for
Taxes not yet delinquent, or (z) waiver of any rights of material value or
cancellation or any material debts or claims, (ix) any incurrence of any
material liability (absolute or contingent), except for current liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, (x) any incurrence of any damage, destruction or similar loss, whether
or not covered by insurance, materially affecting the business or properties of
Company or any Company Subsidiary, or (xi) any entering into any transaction of
a material nature other than in the ordinary course of business, consistent with
past practice.
SECTION 4.09 Employee Benefit Plans; Labor Matters
(a) The Company Disclosure Schedule lists each employee benefit fund,
plan, program, arrangement and contract (including, without limitation, any
"pension" plan, fund or program, as defined in Section 3(2) of ERISA, any
"employee benefit plan", as defined in Section 3(3) of ERISA and any plan,
program, policy, arrangement or contract providing for severance), whether
currently in effect or pursuant to which the Company or any Company Subsidiary
has any ongoing liability
22
<PAGE>
or obligation; medical, dental or vision benefits; life insurance or death
benefits; disability benefits, sick pay or other wage replacement; vacation,
holiday or sabbatical; pension or profit-sharing benefits; stock options or
other equity compensation; bonus or incentive pay or other material fringe
benefits) whether written or not ("Benefit Plans"), maintained, sponsored or
contributed to or required to be contributed to by Company or any Company
Subsidiary (the "Company Benefit Plans"). With respect to each Company Benefit
Plan, Company has delivered or made available to Parent a true, complete and
correct copy of (i) such Company Benefit Plan (or, if not written, a written
summary of its material terms) and the most recent summary plan description, if
any, related to such Company Benefit Plan, (ii) each trust agreement or other
funding arrangement relating to such Company Benefit Plan, (iii) the most recent
annual report (Form 5500) filed with the IRS with respect to such Company
Benefit Plan (and, if the most recent annual report is a Form 5500R, the most
recent Form 5500C filed with respect to such Company Benefit Plan), (iv) the
most recent actuarial report or financial statement relating to such Company
Benefit Plan and (v) the most recent determination letter, if any, issued by the
IRS with respect to such Company Benefit Plan and any pending request for such a
determination letter. Neither Company nor any Company Subsidiary nor, to the
knowledge of Company, any other person or entity, has any express commitment,
whether legally enforceable or not, to modify, change or terminate any Company
Benefit Plan, other than with respect to a modification, change or termination
required by ERISA or the Code.
(b) Each Company Benefit Plan has been administered in all material
respects in accordance with its terms and all applicable laws, including ERISA
and the Code, and contributions required to be made under the terms of any of
the Company Benefit Plans as of the date of this Agreement have been timely made
or, if not yet due, have been properly reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the Company Reports prior to
the date of this Agreement. With respect to the Company Benefit Plans, no event
has occurred and, to the knowledge of Company, there exists no condition or set
of circumstances in connection with which Company or any Company Subsidiary
could be subject to any liability (other than for routine benefit liabilities)
under the terms of, or with respect to, such Company Benefit Plans, ERISA, the
Code or any other applicable Law.
(c) Company on behalf of itself and each Company ERISA Affiliate (as
defined below) hereby represents that: (i) each Company Benefit Plan which is
intended to qualify under Section 401(a), Section 401(k), Section 401(m) or
Section 4975(e)(6) of the Code has received a favorable determination letter
from the IRS as to its qualified status, and each trust established in
connection with any Company which is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received an opinion letter from
the IRS that it is so exempt or application for same is pending that is timely
filed with the IRS, and to Company's knowledge no fact or event has occurred
that is reasonably likely to materially adversely affect the qualified status of
any such Company Benefit Plan or the exempt status of any such trust; (ii) to
Company's knowledge there has been no prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code and other than a transaction
that is exempt under a statutory or administrative exemption) with respect to
any Company Plan that could result in liability to the Company or a Company
Subsidiary and (iii) each Company Benefit Plan can be amended, terminated or
otherwise discontinued after the
23
<PAGE>
Effective Time in accordance with its terms, without liability (other than (A)
liability for ordinary administrative expenses typically incurred in a
termination event or (B) if the Company Benefit Plan is pension benefit plan
subject to Part 2 of Title I of ERISA, liability for the accrued benefits as of
the date of such termination (if and to the extent required by ERISA)) to the
extent that either there are sufficient assets set aside in a trust or insurance
contract to satisfy such liability or such liability is reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the
Company Reports prior to the date of this Agreement. No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
Company is threatened, against or with respect to any such Company Benefit Plan,
including any audit or inquiry by the Internal Revenue Service or United States
Department of Labor (other than routine benefits claims).
(d) No Company Benefit Plan is a multiemployer pension plan (as defined
in Section 3(37) of ERISA) or other pension plan subject to Title IV of ERISA
and neither the Company, any Company Subsidiary nor any other trade or business
(whether or not incorporated) that is under "common control" with Company or a
Company Subsidiary (within the meaning of ERISA Section 4001) or with respect to
which Company or any Company Subsidiary could otherwise incur liability under
Title IV of ERISA (a "Company ERISA Affiliate") has sponsored or contributed to
or been required to contribute to a multiemployer pension plan or other pension
plan subject to Title IV of ERISA. No material liability under Title IV of ERISA
has been incurred by Company, any Company Subsidiary or any Company ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Company or any Company Subsidiary of incurring or
being subject (whether primarily, jointly or secondarily) to a material
liability thereunder. None of the assets of Company or any Company Subsidiary
is, or may reasonably be expected to become, the subject of any lien arising
under ERISA or Section 412(n) of the Code.
(e) With respect to each Benefit Plan required to be set forth in the
Disclosure Schedule that is subject to Title IV or Part 3 of Title I of ERISA or
Section 412 of the Code, (i) no reportable event (within the meaning of Section
4043 of ERISA, other than an event that is not required to be reported before or
within 30 days of such event) has occurred or is expected to occur, (ii) there
was not an accumulated funding deficiency (within the meaning of Section 302 of
ERISA or Section 412 of the Code), whether or not waived, as of the most
recently ended plan year of such Benefit Plan; and (iii) there is no "unfunded
benefit liability" (within the meaning of Section 4001(a)(18) of ERISA).
(f) Company has delivered to Parent true, complete and correct copies
of (i) all employment agreements with officers and all consulting agreements of
Company and each Company Subsidiary, (ii) all severance plans, agreements,
programs and policies of Company and each Company Subsidiary with or relating to
their respective employees, directors or consultants, and (iii) all plans,
programs, agreements and other arrangements of Company and each Company
Subsidiary with or relating to their respective employees, directors or
consultants which contain "change of control" provisions, and all such plans,
agreements, programs, and policies are specifically identified as such on
Section 4.09 of the Company Disclosure Schedule. Except as set forth on Section
4.09 of the Company Disclosure Schedule, no payment or benefit which may be
required to be made by Company or any Company Subsidiary or which otherwise may
be required to be made under the
24
<PAGE>
terms of any Company Benefit Plan or other arrangement will constitute a
parachute payment under Code Section 280(G)(1), and the consummation of the
transactions contemplated by this Agreement will not, alone or in conjunction
with any other possible event (including termination of employment), (i) entitle
any current or former employee or other service provider of Company or any
Company Subsidiary to severance benefits or any other payment, compensation or
benefit (including forgiveness of indebtedness), and the amount such severance
benefit or any other payment is indicated in Section 4.04 of the Company
Distribution Schedule except as expressly provided by this Agreement, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation or benefit due any such employee or service provider.
(g) Neither Company nor any Company Subsidiary is a party to, or has
any obligations under or with respect to, any collective bargaining or other
labor union contract applicable to persons employed by Company or any Company
Subsidiary and no collective bargaining agreement is being negotiated by Company
or any Company Subsidiary or any person or entity that may obligate the Company
or any Company Subsidiary thereunder. As of the date of this Agreement, there is
no labor dispute, strike, union organizing activity or work stoppage against
Company or any Company Subsidiary pending or, to the knowledge of Company,
threatened which may interfere with the respective business activities of
Company or any Company Subsidiary. As of the date of this Agreement, to the
knowledge of Company, none of Company, any Company Subsidiary, or any of their
respective representatives or employees has committed any unfair labor practice
in connection with the operation of the respective businesses of Company or any
Company Subsidiary, and there is no charge or complaint filed against Company or
any Company Subsidiary by or with the National Labor Relations Board or any
comparable Governmental Entity pending or threatened in writing.
(h) Except as required by Law, no Company Benefit Plan provides any of
the following retiree or post-employment benefits to any person: medical,
disability or life insurance benefits. To Company's knowledge, Company and the
Company ERISA Affiliates are in compliance with (i) the requirements of the
applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and the
regulations (including proposed regulations) thereunder and (ii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996,
as amended, and the regulations (including the proposed regulations) thereunder.
(i) Since November 1, 1998, neither the Company nor any Company
Subsidiary has terminated any at-will employee other than pursuant to the forms
of the notice attached hereto as Schedules 4.09(i)-1, 4.09(i)-2 or 4.09(i)-3. No
single termination of at-will employees, nor any group of terminations,
constitutes a violation of any federal or state law governing the closing of any
plant or termination or winding-up of any business.
25
<PAGE>
SECTION 4.10 Certain Tax Matters
Neither Company, nor to Company's knowledge, any of its affiliates, has
taken or agreed to take any action (other than actions contemplated by this
Agreement) that could be expected to prevent the Merger from constituting a
"reorganization" under Section 368 of the Code. Company is not aware of any
agreement or plan to which Company or any of its affiliates is a party or other
circumstances relating to Company or any of its affiliates that could reasonably
be expected to prevent the Merger from so qualifying as a reorganization under
Section 368 of the Code.
SECTION 4.11 Contracts
(a) Section 4.11 of the Company Disclosure Schedule sets forth a list
of all material written and oral contracts or agreements relating to the Company
or any Company Subsidiary, including without limitation any: (i) contract
resulting in a commitment or potential commitment for expenditure or other
obligation or potential obligation, or which provides for the receipt or
potential receipt, involving in excess of One Hundred Thousand Dollars
($100,000) in any instance, or series of related contracts that in the aggregate
give rise to rights or obligations exceeding such amount, other than contracts
("Customer Contracts") with health plans and providers, entered into by the
Company's managed care business in the ordinary course of business, (ii) the
twelve (12) largest Customer Contracts based upon revenues generated to the
Company; (iii) indenture, mortgage, promissory note, loan agreement, guarantee
or other agreement or commitment for the borrowing or lending of money or
encumbrance of assets involving more than One Hundred Thousand Dollars
($100,000) in each instance; (iv) agreement which restricts the Company from
engaging in any line of business or from competing with any other person; (v)
warranties made with respect to products manufactured, packaged, distributed or
sold or services provided by the Company; (vi) any agreement which terminates,
or gives another party the right to terminate such agreement, upon the
completion of the transaction contemplated by this Agreement; or (vii) any other
contract, agreement, instrument, arrangement or commitment that is material to
the condition (financial or otherwise), results of operation, assets,
properties, liabilities, business or prospects of the Company (collectively, and
together with all other agreements required to be disclosed on the Company
Disclosure Schedule the "Company Material Contracts"). The Company has
previously furnished to Parent true, complete and correct copies of all written
agreements, as amended, required to be listed on Section 4.11 of the Company
Disclosure Schedule.
(b) The Company Material Contracts are each in full force and effect
and are the valid and legally binding obligations of the Company and, to the
best of Company's knowledge, the other parties thereto, enforceable in
accordance with their respective terms, subject only to bankruptcy, insolvency
or similar laws affecting the rights of creditors generally and to general
equitable principles. Except as set forth in Section 4.11 of the Company
Disclosure Schedule, the Company has not received notice of its default under
any of the Company Material Contracts and no event has occurred which, with the
passage of time or the giving of notice or both, would constitute a default by
the Company thereunder. Except as set forth in the Company Disclosure Schedule,
to the Company's knowledge, none of the other parties to any of the Company
Material Contracts is in
26
<PAGE>
default thereunder, nor has an event occurred which, with the passage of time or
the giving of notice or both would constitute a default by such other party
thereunder. Except as set forth in Section 4.11 of the Company Disclosure
Schedule, the Company has not received notice of the pending or threatened
cancellation, revocation or termination of any of the Company Material
Contracts, nor are any of them aware of any facts or circumstances which could
reasonably be expected to lead to any such cancellation, revocation or
termination.
(c) Except as otherwise indicated on Section 4.11 of the Company
Disclosure Schedule, to the Company's knowledge, after due inquiry, the
continuation, validity and effectiveness of the Company Material Contracts under
the current terms thereof will in no way be affected by the consummation of the
transactions contemplated by this Agreement.
(d) Section 4.11 of the Company Disclosure Schedule specifically
identifies a list of all contracts which contain any earn-out or contingency
provision with respect to issuances of Company Common Stock and/or any cash
payments by the Company or Company Subsidiaries.
(e) Section 4.11 of the Company Disclosure Schedule identifies all
agreements which restrict the Company from engaging in any line of business or
from competing with any other person.
SECTION 4.12 Litigation
Except as set forth in Section 4.12 of the Company Disclosure Schedule,
there is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of Company, threatened against Company or any Company Subsidiary, and,
to the knowledge of Company, there are no existing facts or circumstances that
could reasonably be expected to result in a suit, claim, action, proceeding or
investigation. Except as set forth in Section 4.12 of the Company Disclosure
Schedule, Company is not aware of any facts or circumstances which could
reasonably be expected to result in the denial of insurance coverage under
policies issued to Company and Company Subsidiaries in respect of such suits,
claims, actions, proceedings and investigations. Except as set forth in Section
4.12 of the Company Disclosure Schedule, neither Company nor any Company
Subsidiary is subject to any outstanding order, writ, injunction or decree.
SECTION 4.13 Environmental Matters
Company and the Company Subsidiaries are in compliance with all
material applicable Environmental Laws and all Company Permits required by
Environmental Laws. All past noncompliance of Company or any Company Subsidiary
with Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future material obligation, cost or liability. Neither
Company nor any Company Subsidiary has released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property currently or
formerly owned, leased or occupied by Company or any Company Subsidiary, in
violation of any Environmental Law.
27
<PAGE>
SECTION 4.14 Intellectual Property
(a) Section 4.14(a) of the Company Disclosure Schedule contains a true
and complete list of Company's and the Company's Subsidiaries patents, patent
applications, registered trademarks, trademark applications, trade names,
registered service marks, service mark applications, Internet domain names,
Internet domain name applications, copyright registrations and applications and
other filings and formal actions made or taken pursuant to Federal, state, local
and foreign laws by Company to protect its interests in Company Intellectual
Property, and includes details of all due dates for further filings,
maintenance, payments or other actions falling due in respect of Company
Intellectual Property within twelve (12) months of the Effective Time. All of
Company's patents, patent applications, registered trademarks, and trademark
applications, and registered copyrights remain in good standing with all fees
and filings due as of the date hereof. The Company has previously provided
Purchaser with a list of all other trademarks and service marks which are
material to the Company's business.
(b) Company has made all registrations that Company (including any of
its subsidiaries) is required to have made in relation to the processing of
data, and is in good standing with respect to such registrations with all fees
due as of the Effective Time duly made.
(c) Company Intellectual Property contains only those items and rights
which are: (i) owned by Company; (ii) in the public domain; or (iii) rightfully
used by Company pursuant to a valid and enforceable license or other agreement
(the "Company Licensed Intellectual Property"), the parties, date, term and
subject matter of each such license or other agreement (each, a "License
Agreement") being set forth on Section 4.14(c) of the Company Disclosure
Schedule. Company has all rights in Company Intellectual Property necessary to
carry out Company's current activities and, to the knowledge of the Company, the
Company's future activities to the extent such future activities are already
planned, including without limitation, to the extent required to carry out such
activities, rights to make, use, reproduce, modify, adopt, create derivative
works based on, translate, distribute (directly and indirectly), transmit,
display and perform publicly, license, rent and lease and, other than with
respect to Company Licensed Intellectual Property, assign and sell, Company
Intellectual Property.
(d) The reproduction, manufacturing, distribution, licensing,
sublicensing, sale or any other exercise of rights in any Company Intellectual
Property, product, work, technology or process as now used or offered or
proposed for use, licensing or sale by Company does not infringe on any patent,
design right, trademark, trade name, service mark, trade dress, Internet domain
name, copyright, database, statistical model, technology, invention, supplier
list, trade secret, know-how, computer software program or application of any
person, anywhere in the World. The Company has not received notice of any claims
(i) challenging the validity, effectiveness or, other than with respect to
Company Licensed Intellectual Property, ownership by Company of any Company
Intellectual Property, or (ii) to the effect that the use, distribution,
licensing, sublicensing, sale or any other exercise of rights in any product,
work, technology or process as now used or offered or proposed for use,
licensing, sublicensing or sale by Company or its agents or use by its customers
infringes
28
<PAGE>
or will infringe on any intellectual property or other proprietary or personal
right of any person. To the knowledge of Company, no such claims have been
threatened by any person, nor are there any valid grounds for any bona fide
claim of any such kind. All of the rights within Company Intellectual Property
are enforceable and subsisting. To the knowledge of Company, there is no
unauthorized use, infringement or misappropriation of any Company Intellectual
Property by any third party, employee or former employee.
(e) Except as set forth in section 4.14 of the Company Disclosure
Schedule, Company is not, nor as a result of the execution or delivery of this
Agreement, or performance of Company's obligations hereunder, will Company be,
in violation of any material license, sublicense, agreement or instrument to
which Company is a party or otherwise bound, nor will execution or delivery of
this Agreement, or performance of Company's obligations hereunder, cause the
diminution, termination or forfeiture of any Company Intellectual Property.
(f) Section 4.14(f) of the Company Disclosure Schedule contains a true
and complete list of all software programs which are owned by the Company (the
"Company Software Programs"). Except as set forth in section 4.14 of the Company
Disclosure Schedule, Company owns full and unencumbered right and good, valid
and marketable title to the Company Intellectual Property and the Company
Software Programs which are material to the Company's business free and clear of
all mortgages, pledges, liens, security interests, conditional sales agreements,
encumbrances or charges of any kind.
(g) Except as set forth in Section 4.14 of the Company Disclosure
Schedule, the Company Software Programs (i) have been designed to ensure year
2000 compatibility, which includes, but is not limited to, date data century
recognition, and calculations that accommodate same century and multi-century
formulas and date values; (ii) operate and will operate in accordance with their
specifications prior to, during and after the calendar year 2000; and (iii)
shall not end abnormally or provide invalid or incorrect results as a result of
date data, specifically including date data which represents or references
different centuries or more than one century.
(h) Except as set forth in Section 4.14 of the Company Disclosure
Schedule, Company Intellectual Property is free and clear of any and all
mortgages, pledges, liens, security interests, conditional sale agreements,
encumbrances or charges of any kind.
(i) Except as set forth in the Company Disclosure Schedule, Company
(including its subsidiaries) does not owe any royalties or other payments to
third parties in respect of Company Intellectual Property. All royalties or
other payments set forth in the Company Disclosure Schedule that have accrued
prior to the Effective Time have been paid.
SECTION 4.15 Taxes
(a) Company and each of the Company Subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Company or any
Company Subsidiary is or has been
29
<PAGE>
a member, have properly completed and timely filed all Tax Returns required to
be filed by them and have paid all Taxes shown thereon to be due. Company has
provided adequate accruals in accordance with generally accepted accounting
principles in its latest financial statements included in the Company Reports
for any Taxes that have not been paid, whether or not shown as being due on any
Tax Returns. Company and the Company Subsidiaries have no material liability for
unpaid Taxes accruing after the date of the Company's latest financial
statements included in the Company Reports.
(b) There is (i) no material claim for Taxes that is a lien against the
property of Company or any Company Subsidiary or is being asserted against
Company or any Company Subsidiary other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of Company or any Company Subsidiary
being conducted by a Tax Authority; (iii) no extension of the statute of
limitations on the assessment of any Taxes granted by Company or any Company
Subsidiary and currently in effect, and (iv) no agreement, contract or
arrangement to which Company or any Company Subsidiary is a party that may
result in the payment of any amount that would not be deductible by reason of
Section 280G or Section 404 of the Code.
(c) There has been no change in ownership of Company or any Company
Subsidiaries that has caused the utilization of any losses of such entities to
be limited pursuant to Section 382 of the Code, and any loss carryovers
reflected on the latest financial statements included in the Company Reports are
properly computed and reflected.
(d) Except as set forth in Section 4.15 of the Company Disclosure
Schedule, Company and the Company Subsidiaries have not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(e) Neither Company nor any Company Subsidiary has filed or will file
any consent to have the provisions of paragraph 341(f)(2) of the Code (or
comparable provisions of any state Tax laws) apply to Company or any Company
Subsidiary.
(f) Neither Company nor any Company Subsidiary is a party to any Tax
sharing or Tax allocation agreement nor does Company or any Company Subsidiary
have any liability or potential liability to another party under any such
agreement.
(g) Neither Company nor any Company Subsidiary has filed any
disclosures under Section 6662 or comparable provisions of state, local or
foreign law to prevent the imposition of penalties with respect to any Tax
reporting position taken on any Tax Return.
(h) Company and each Company Subsidiary has in its possession receipts
for any Taxes paid to foreign Tax authorities. Neither Company nor any Company
Subsidiary has ever been a "personal
30
<PAGE>
holding company" within the meaning of Section 542 of the Code or a "United
Sates real property holding corporation" within the meaning of Section 897 of
the Code.
SECTION 4.16 Insurance
Company and each Company Subsidiary is presently insured, and during
each of the past five calendar years has been insured, against such risks, as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. The Company reasonably believes that the
policies of fire, theft, liability, medical malpractice, director and officer,
product liability and other insurance maintained with respect to the assets or
businesses of Company and Company Subsidiaries provide adequate coverage against
loss. Section 4.16 of the Company Disclosure Schedule sets forth a complete and
correct list as of the date hereof of all insurance policies maintained by
Company or the Company Subsidiaries, and Company has delivered to Parent
complete and correct copies of all such policies, together with all riders and
amendments thereto. All such policies are in full force and effect and all
premiums due thereon have been paid to the date hereof. Company and the Company
Subsidiaries have complied in all material respects with the terms of such
policies.
SECTION 4.17 Properties
(a) Company and the Company Subsidiaries have good title, free
and clear of all material mortgages, liens, pledges, charges or other
encumbrances to all their material (individually or in the aggregate)
tangible properties and assets, real, personal or mixed, reflected in
the Company's consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, as being owned by Company and the Company Subsidiaries as of
the date thereof, other than (i) any properties or assets that have
been sold or otherwise disposed of in the ordinary course of business
since the date of such financial statements, (ii) liens disclosed in
the notes to such financial statements and (iii) liens arising in the
ordinary course of business after the date of such financial
statements. All buildings, and all fixtures, equipment and other
property and assets that are material to its business on a consolidated
basis, held under leases or sub-leases by Company or any Company
Subsidiary are held under valid instruments enforceable in accordance
with their respective terms, subject to applicable laws of bankruptcy,
insolvency or similar laws relating to creditors' rights generally and
to general principles of equity (whether applied in a proceeding in law
or equity). Substantially all of Company's and the Company
Subsidiaries' equipment in regular use has been reasonably maintained
and is in serviceable condition, reasonable wear and tear excepted.
(b) Neither the Company nor any Company Subsidiary is
obligated as a lessee (which term as used herein includes sublessee and
similar terms) under any lease for real property, other than Company
leases related to the Practices (as defined in Section 6.12 hereof) and
the leases set forth in Schedule 4.17 (the "Company Leases").
31
<PAGE>
SECTION 4.18 Affiliates
Section 4.18 of the Company Disclosure Schedule sets forth the name of
each person who is, in Company's reasonable judgment, an affiliate (as such term
is used in Rule 145 under the Securities Act.
SECTION 4.19 Opinion of Financial Advisor
PaineWebber Incorporated ("PaineWebber") has delivered to the board of
directors of Company its written opinion to the effect that, as of the date
hereof, the Exchange Ratio is fair to the holders of shares of Company Common
Stock from a financial point of view (the "Paine Webber Fairness Opinion").
SECTION 4.20 Brokers
The Company has furnished to Parent or its counsel a true and complete
copy of letter agreements (the "Engagement Letters") between the Company and its
counsel and its financial advisor, such Engagement Letters being the only
agreements pursuant to which such firms would be entitled to any payment
relating to the transactions contemplated hereunder. Other than Paine Webber and
as set forth in Section 4.20 of the Company Disclosure Schedule, no broker,
financial advisor or investment banker or other person is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of its Subsidiaries.
SECTION 4.21 Florida Business Corporation Law
For purposes of Section 607.0902 of the Florida Business Corporation
Law, the execution and delivery of this Agreement, the Stockholder Agreement and
the Purchase of shares of Company Common Stock or other securities issued by the
Company or by Parent and Merger Sub, including pursuant to the Stockholder
Agreement referred to in the preambles of this Agreement, will not constitute a
"control share acquisition" as defined in Section 607.0902(2) of the Florida
Business Corporation Law. Assuming Parent's representation in Section 5.18
hereof is true, to Company's knowledge, no other state takeover statute or
similar statute or regulation applies or purports to apply to the Merger, this
Agreement, , the Stockholders Agreements or the transactions contemplated by
this Agreement, and the Stockholders Agreements.
SECTION 4.22 Business Activity Restriction
Except as set forth in Section 4.21 of the Company Disclosure Schedule,
there is no non-competition or other similar agreement, commitment, judgment,
injunction, order or decree to which Company or any subsidiary of Company is a
party or subject to that has or could reasonably be expected to have the effect
of prohibiting or impairing the conduct of business by Company. Except as set
forth in Section 4.21 of the Company Disclosure Schedule, Company has not
entered
32
<PAGE>
into any agreement under which Company is restricted in any material respect
from selling, licensing or otherwise distributing any of its technology or
products to, or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market or line of business.
SECTION 4.23 Governmental Authorizations
The Company and, to the Company's Knowledge, without any independent
investigation, each Ophthalmologist/Optometrist Employee, possesses all
necessary licenses, franchises, permits and other governmental authorizations
(collectively, "Governmental Authorizations"), including, but not limited to all
licenses, franchises, permits and authorizations for the conduct of the
Company's business as now conducted (except for those Governmental
Authorizations the failure to possess individually or in the aggregate could not
reasonably be expected to have a Company Material Adverse Effect), all of which
are listed (with expiration dates, if applicable) on Section 4.23 of the Company
Disclosure. Except as set forth in Section 4.23 of the Company Disclosure
Schedule, the transactions contemplated by this Agreement will not result in a
default under or a breach or violation of, or adversely affect the rights and
benefits afforded by any licenses, franchises, permits or authorizations, except
for defaults, breaches or violations which individually or in the aggregate
could not reasonably be expected to have a Company Material Adverse Effect. All
licenses, franchises, permits and other authorizations are valid and in full
force and effect, except for those licenses, franchises, permits and other
Governmental Authorizations the failure to possess could not reasonably be
expected to have a Company Material Adverse Effect. The Company and to the
Company's Knowledge, without any independent investigation, each
Ophthalmologist/Optometrist Employee is currently in compliance therewith, and
the Company has not received any notice that any Governmental Entity is
considering challenging, revoking, canceling, restricting, conditioning or not
renewing any license, franchise, permit or other authorization, except for those
licenses, franchises, permits and other Governmental Authorizations the failure
of which to possess could not reasonably be expected to have a Company Material
Adverse Effect. Except as set forth in Section 4.23 of the Company Disclosure
Schedule, the Governmental Authorizations listed in Section 4.23 of the Company
Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct and operate
its business in the manner it currently conducts and operates such businesses
and to permit it to own and use its assets in the manner in which it currently
owns and uses such assets.
SECTION 4.24 Gifts, Political Contributions, Unrecorded Funds
Neither the Company nor, to the Company's Knowledge without independent
investigation, any agent, Employee or independent contractor of the Company has,
in connection with the business of the Company (i) made or agreed to make any
contribution, payment, or gift to any customer, supplier, landlord, political
candidate, governmental official, official of any health plan, patient,
employee, or agent where either the contribution, payment, or gift or the
purpose thereof was illegal under any law or regulation; (ii) established or
maintained any unrecorded fund or asset for any purpose or made any false
entries on its respective books and records for any reason; (iii) made or
33
<PAGE>
agreed to make any contribution, or reimbursed any political gift or
contribution made by any other Person, to any candidate for federal, state, or
local public office in violation of any law or regulation; or (iv) submitted any
claim for services rendered or reimbursement for expenses to any Person where
the services were not actually rendered or the expenses were not actually
incurred.
SECTION 4.25 No Dissenters' Rights
The Company's Common Stock is designated as a national market system
security within the meaning of Section 607.1302 of the FBCA. The Company's
Articles of Incorporation or Bylaws do not provide the holders of any class or
series of capital stock of the Company with dissenters' rights under Section
607.1302 of the FBCA or any other applicable law.
SECTION 4.26 Board Recommendation
The Board of Directors of the Company, at a meeting duly called and
held, has unanimously (i) approved this Agreement, (ii) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are in
the best interests of the stockholders of the Company and (iii) resolved subject
to its fiduciary duties under applicable law to recommend that the stockholders
of the Company adopt this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Company, subject to the
exceptions specifically disclosed in the Parent Disclosure Schedule, all such
exceptions to be referenced to a specific representation set forth in this
Article V or to otherwise be clearly applicable to the representations hereof
not specifically referenced, that (it being understood that for purposes of this
Article V, unless the context otherwise requires, the term Parent shall be
deemed to include all of the Parent's Subsidiaries:
SECTION 5.01 Organization and Qualification; Subsidiaries
(a) Parent and each directly and indirectly owned subsidiary of Parent
(the "Parent Subsidiaries") has been duly organized and is validly existing and
in good standing (to the extent applicable) under the laws of the jurisdiction
of its incorporation or organization, as the case may be, and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Except as set forth in
Section 5.01 of the Parent Disclosure Schedule, Parent and each Parent
Subsidiary is duly qualified or licensed to do business, and is in good standing
(to the extent applicable), in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except for such failure to be so
qualified or licensed and in good standing that could not reasonably be expected
to have, individually or in the aggregate, a Parent Material Adverse
34
<PAGE>
Effect.
(b) Section 5.01 of the Parent Disclosure Schedule sets forth, as of
the date of this Agreement, a true and complete list of each Parent Subsidiary,
together with (i) the jurisdiction of incorporation or organization of each
Parent Subsidiary and the percentage of each Parent Subsidiary's outstanding
capital stock or other equity interests owned by Parent or another Parent
Subsidiary and (ii) an indication of whether each Parent Subsidiary is a
"Significant Subsidiary" as defined in Regulation S-X under the Exchange Act.
Except as set forth in Section 5.01 of the Parent Disclosure Schedule, neither
Parent nor any Parent Subsidiary owns an equity interest in any partnership or
joint venture arrangement or other business entity that is material to the
business, assets, liabilities, financial condition or results of operations of
Parent and the Parent Subsidiaries, taken as a whole.
SECTION 5.02 Certificate of Incorporation and Bylaws
The copies of each of Parent's and Merger Subs, certificate of
incorporation and bylaws previously provided to Company by Parent are true,
complete and correct copies thereof. Such certificate of incorporation and
bylaws are in full force and effect. Parent is not in violation of any of the
provisions of its certificate of incorporation or bylaws.
SECTION 5.03 Capitalization
(b) The authorized capital stock of Parent consists of 50,000,000 shares of
Parent Common Stock and 5,000,000 shares of preferred stock ("Parent Preferred
Stock"). As of January 28, 2000 (which numbers are not materially different on
the date hereof), (i) 12,543,556 shares of Parent Common Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of Parent Common Stock are held in the treasury of Parent, (iii) no
shares of Parent Common Stock are held by Parent Subsidiaries, (iv)
approximately 2,007,976 shares of Parent Common Stock are reserved for future
issuance pursuant to outstanding options and warrants to purchase Parent Common
Stock ("Parent Stock Options"), and (v) 418,803 shares of Parent Preferred Stock
are outstanding. Except as set forth in Section 5.03 of the Parent Disclosure
Schedule or shares of Parent Common Stock issuable pursuant to the Parent Stock
Plans, there are no options, warrants or other rights, agreements, arrangements
or commitments of any character obligating Parent or any Parent Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in,
Parent or any Parent Subsidiary. All shares of Parent Common Stock subject to
issuance as aforesaid, upon issuance prior to the Effective Time on the terms
and conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except as
set forth in Section 5.03 of the Parent Disclosure Schedule, there are no
outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any
capital stock of any Parent Subsidiary. Except as set forth in Section 5.03 of
the Parent Disclosure Schedule, each outstanding share of capital stock of each
Parent Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Parent or another Parent Subsidiary
is free and
35
<PAGE>
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on Parent's or such other Parent
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever.
(c) The consummation of the Merger will not trigger any anti-dilution rights or
price adjustment in connection with any options to purchase Parent Common Stock.
SECTION 5.04 Authority Relative to This Agreement
Each of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate such transactions (other than the
approval of this Agreement and the Merger by the holders of a majority of the
outstanding shares of Parent Common Stock present at the Parent Shareholders'
Meeting and the consent of Parent as sole stockholder of Merger Sub). This
Agreement has been duly executed and delivered by each of Parent and Merger Sub
and, assuming the due authorization, execution and delivery by Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub enforceable against Parent and Merger Sub in accordance with its terms.
SECTION 5.05 No Conflict; Required Filings and Consents
(a) The execution and delivery of this Agreement by Parent and Merger
Sub does not, and the performance by Parent and Merger Sub of their obligations
hereunder and the consummation of the Merger will not, except as set forth in
Section 5.05 of the Parent Disclosure Schedule, (i) conflict with or violate any
provision of the articles of incorporation or bylaws of Parent or any equivalent
organizational documents of any Parent Subsidiary, (ii) assuming that all
consents, approvals, authorizations and permits described in Section 5.05(b)
have been obtained and all filings and notifications described in Section
5.05(b) have been made, conflict with or violate any Law applicable to Parent or
any other Parent Subsidiary or by which any material property or material asset
of Parent or any Parent Subsidiary is bound or affected or (iii) result in any
material breach of or constitute a material default (or an event which with the
giving of notice or lapse of time or both could reasonably be expected to become
a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any material property or asset of Parent or any Parent Subsidiary
pursuant to, any Parent Material Contract (as defined below) or Parent Permit
(as defined below).
(b) The execution and delivery of this Agreement by Parent and Merger
Sub does not, and the performance by Parent and Merger Sub of their obligations
hereunder and the consummation of the Merger will not, require any material
consent, approval, authorization or permit of, or filing by
36
<PAGE>
Parent with or notification by Parent to, any Governmental Entity, except as set
forth in Section 5.05 of the Parent Disclosure Schedule or pursuant to
applicable requirements of the Exchange Act, the Securities Act, Blue Sky Laws,
the rules and regulations of the AMEX, state takeover laws, the premerger
notification requirements of the HSR Act, if any, and the filing and recordation
of the Certificate of Merger as required by the FBCA.
SECTION 5.06 Permits; Compliance with Laws
Except as set forth in Section 5.06 of the Parent Disclosure Schedule,
Parent and the Parent Subsidiaries are in possession of all franchises, grants,
authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates,
identification and registration numbers, approvals and orders of any
Governmental Entity necessary for Parent or any Parent Subsidiary to own, lease
and operate its properties or to offer or perform its services or to develop,
produce, store, distribute and market its products or otherwise to carry on its
business as it is now being conducted (collectively, the "Parent Permits")
except for Parent permits which could not reasonably be expected to have a
Parent Material Adverse Effect, and, as of the date of this Agreement, none of
the Parent Permits has been suspended or canceled nor is any such suspension or
cancellation pending or, to the knowledge of Parent, threatened. Neither Parent
nor any Parent Subsidiary is in conflict with, or in default or violation of,
(i) any Law applicable to Parent or any Parent Subsidiary or by which any
material property or asset of Parent or any Parent Subsidiary is bound or
affected or (ii) any Parent Permits, except for conflicts, defaults or
violations which could not reasonably be expected to have a Parent Material
Adverse Effect. Section 5.06 of the Parent Disclosure Schedule sets forth, as of
the date of this Agreement, all actions, proceedings, investigations or surveys
pending or, to the knowledge of Parent, threatened against Parent or any Parent
Subsidiary that could reasonably be expected to result in the suspension or
cancellation of any other material Parent Permit. Except as set forth in Section
5.06 of the Parent Disclosure Schedule, since August 13, 1999, neither Parent
nor any Parent Subsidiary has received from any Governmental Entity any written
notification with respect to possible conflicts, defaults or violations of Laws.
SECTION 5.07 SEC Filings; Financial Statements
(a) Parent has timely filed all forms, reports, statements and
documents required to be filed by it (A) with the SEC and the AMEX since July 1,
1999 (collectively, together with any such forms, reports, statements and
documents Parent may file subsequent to the date hereof until the Closing, the
"Parent Reports") and (B) with any other Governmental Entities. Each Parent
Report (i) was prepared in accordance with the requirements of the Securities
Act, the Exchange Act or the AMEX, as the case may be, substantially in all
respects and (ii) did not at the time it was filed contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. Each form,
report, statement and document referred to in clause (B) of this paragraph was
prepared in all material respects in accordance with the requirements of
applicable Law. No Parent Subsidiary is subject to the periodic reporting
requirements of the
37
<PAGE>
Exchange Act or required to file any form, report or other document with the
SEC, the AMEX, any other stock exchange or any other comparable Governmental
Entity.
(b) Except as is provided in the Parent Reports, each of the
consolidated financial statements (including, in each case, any notes thereto)
contained in the Parent Reports was prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated (except as may be indicated
in the notes thereto) and each presented fairly, in all material respects, the
consolidated financial position of Parent and the consolidated Parent
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of Parent and the Parent Subsidiaries as reported in
the Parent Reports, including the notes thereto, none of Parent or any Parent
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in notes thereto prepared in accordance with GAAP, except for
immaterial liabilities or obligations incurred in the ordinary course of
business consistent with past practice since June 30, 1999 that have not had or
could not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.
(d) Parent has furnished to Company copies of the unaudited
consolidated and consolidating balance sheets and statements of income, changes
in stockholders' equity, and cash flow as of and for the months ended October 31
and November 30, 1999 for the Parent and the Parent Subsidiaries (collectively,
the "Financial Statements"). The Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicted in the notes thereto), present
fairly, in all material respects, the consolidated financial condition of the
Parent and the consolidated Parent Subsidiaries as of such dates and the results
of operations of the Parent and the Parent Subsidiaries for such periods
provided, however, that the Financial Statements are subject to normal and
recurring immaterial year-end adjustments and lack footnotes and other
presentation items.
(e) Parent has sold 3,571, 428 shares of Parent Common Stock offered
pursuant to its Registration Statement on Form S-1 declared effective by the SEC
on January 19, 2000 at purchase price of $3.50 per share. As of the date hereof,
the net proceeds have been used by Parent in the manner described in such Form
S-1.
SECTION 5.08 Absence of Certain Changes or Events
Except as set forth in Section 5.08 of the Parent Disclosure Schedule,
since September 30, 1999, Parent and the Parent Subsidiaries have conducted
their businesses only in the ordinary course consistent with past practice and,
since such date, there has not been (i) any material changes in or effect on the
business, assets, liabilities, financial condition or results of operations of
Parent or the Parent Subsidiaries, (ii) any event that could reasonably be
expected to prevent or materially delay
38
<PAGE>
the performance of Parent's obligations pursuant to this Agreement and the
consummation of the Merger by Parent, (iii) any material change by Parent in its
accounting methods, principles or practices, (iv) any declaration, setting aside
or payment of any dividend or distribution in respect of the shares of Parent
Common Stock or any redemption, purchase or other acquisition of any of Parent's
securities, (v) except for changes in the ordinary course of business consistent
with past practice, any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting or repricing of stock options, stock appreciation
rights, performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any employees, officers, consultants or directors of Parent or
any Parent Subsidiary, (vi) any issuance or sale of any stock, notes, bonds or
other securities other than pursuant to the exercise of outstanding securities,
or entering into any agreement with respect thereto, or the issuances of options
under the Parent Stock Plans, (vii) any amendment to the Parent's certificate of
incorporation or bylaws, (viii) other than in the ordinary course of business
consistent with past practice, any (x) purchase, sale, assignment or transfer of
any material assets, (y) mortgage, pledge or existence of any lien, encumbrance
or charge on any material assets or properties, tangible or intangible except
for liens for Taxes not yet delinquent, or (z) waiver of any rights of material
value or cancellation or any material debts or claims, (ix) any incurrence of
any material liability (absolute or contingent), except for current liabilities
and obligations incurred in the ordinary course of business consistent with past
practice, (x) any incurrence of any damage, destruction or similar loss, whether
or not covered by insurance, materially affecting the business or properties of
Parent or any Parent Subsidiary, or (xi) any entering into any transaction of a
material nature other than in the ordinary course of business, consistent with
past practice.
SECTION 5.09 Employee Benefit Plans; Labor Matters
(a) The Parent Disclosure Schedule lists each material employee benefit
fund, plan, program, arrangement and contract (including, without limitation,
any "pension" plan, fund or program, as defined in Section 3(2) of ERISA, any
"employee benefit plan", as defined in Section 3(3) of ERISA and any plan,
program, policy, arrangement or contract providing for severance), whether
currently in effect or pursuant to which the Parent has any ongoing liability or
obligation; medical, dental or vision benefits; life insurance or death
benefits; disability benefits, sick pay or other wage replacement; vacation,
holiday or sabbatical; pension or profit-sharing benefits; stock options or
other equity compensation; bonus or incentive pay or other material fringe
benefits) whether written or not ("Benefit Plans"), maintained, sponsored or
contributed to or required to be contributed to by Parent or any Parent
Subsidiary (the "Parent Benefit Plans"). With respect to each Parent Benefit
Plan, Parent has delivered or made available to Company a true, complete and
correct copy of (i) such Parent Benefit Plan (or, if not written, a written
summary of its material terms) and the most recent summary plan description, if
any, related to such Parent Benefit Plan, (ii) each trust agreement or other
funding arrangement relating to such Parent Benefit Plan, (iii) the most recent
annual report (Form 5500) filed with the IRS with respect to such Parent Benefit
Plan (and, if the most recent annual report is a Form 5500R, the most recent
Form 5500C filed with respect to such Parent Benefit Plan), (iv) the most recent
actuarial report or financial statement relating to such Parent Benefit Plan
39
<PAGE>
and (v) the most recent determination letter, if any, issued by the IRS with
respect to such Parent Benefit Plan and any pending request for such a
determination letter. Neither Parent nor any Parent Subsidiary nor, to the
knowledge of Parent, any other person or entity, has any express commitment,
whether legally enforceable or not, to modify, change or terminate any Parent
Benefit Plan, other than with respect to a modification, change or termination
required by ERISA or the Code.
(b) Except as set forth in Section 5.08 of the Parent Disclosure
Schedule, Parent has delivered to Company true, complete and correct copies of
(i) all employment agreements with officers and all consulting agreements of
Parent and each Parent Subsidiary, (ii) all severance plans, agreements,
programs and policies of Parent and each Parent Subsidiary with or relating to
their respective employees, directors or consultants, and (iii) all plans,
programs, agreements and other arrangements of Parent and each Parent Subsidiary
with or relating to their respective employees, directors or consultants which
contain "change of control" provisions, and all such plans, agreements,
programs, and policies are specifically identified as such on Section 5.09 of
the Parent Disclosure Schedule. Except as set forth in Section 5.09 of the
Parent Disclosure Schedule, no payment or benefit which may be required to be
made by Parent or any Parent Subsidiary or which otherwise may be required to be
made under the terms of any Parent Benefit Plan or other arrangement will
constitute a parachute payment under Code Section 280(G)(1), and the
consummation of the transactions contemplated by this Agreement will not, (i)
entitle any current or former employee or other service provider of Parent or
any Parent Subsidiary to severance benefits or any other payment, compensation
or benefit (including forgiveness of indebtedness) or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation or benefit due any
such employee or service provider.
(c) Neither Parent nor any Parent Subsidiary is a party to, or has any
obligations under or with respect to, any collective bargaining or other labor
union contract applicable to persons employed by Parent or any Parent Subsidiary
and no collective bargaining agreement is being negotiated by Parent or any
Parent Subsidiary or any person or entity that may obligate the Parent or any
Parent Subsidiary thereunder. As of the date of this Agreement, there is no
labor dispute, strike, union organizing activity or work stoppage against Parent
or any Parent Subsidiary pending or, to the knowledge of Parent, threatened
which may interfere with the respective business activities of Parent or any
Parent Subsidiary. As of the date of this Agreement, to the knowledge of Parent,
none of Parent, any Parent Subsidiary, or any of their respective
representatives or employees has committed any unfair labor practice in
connection with the operation of the respective businesses of Parent or any
Parent Subsidiary, and there is no charge or complaint filed against Parent or
any Parent Subsidiary by or with the National Labor Relations Board or any
comparable Governmental Entity pending or threatened in writing.
SECTION 5.10 Certain Tax Matters
(a) Neither Parent, nor to Parent's knowledge, any of its affiliates,
has taken or agreed to take any action (other than actions contemplated by this
Agreement) that could be expected to prevent the Merger from constituting a
"reorganization" under Section 368 of the Code. Parent is not aware
40
<PAGE>
of any agreement or plan to which Parent or any of its affiliates is a party or
other circumstances relating to Parent or any of its affiliates that could
reasonably be expected to prevent the Merger from so qualifying as a
reorganization under Section 368 of the Code.
(b) Parent and each of the Parent Subsidiaries, and any consolidated,
combined, unitary or aggregated group for Tax purposes of which Parent or any
Parent Subsidiary is or has been a member, have properly completed and timely
filed all Tax Returns required to be filed by them and have paid all Taxes shown
thereon to be due. Parent has provided adequate accruals in accordance with
generally accepted accounting principles in its latest financial statements
included in the Parent Reports for any Taxes that have not been paid, whether or
not shown as being due on any Tax Returns. Parent and the Parent Subsidiaries
have no material liability for unpaid Taxes accruing after the date of the
Parent's latest financial statements included in the Parent Reports.
(c) There is (i) no material claim for Taxes that is a lien against the
property of Parent or any Parent Subsidiary or is being asserted against Parent
or any Parent Subsidiary other than liens for Taxes not yet due and payable,
(ii) no audit of any Tax Return of parent or any Parent Subsidiary being
conducted by a Tax Authority; (iii) no extension of the statute of limitations
on the assessment of any Taxes granted by Parent or any Parent Subsidiary and
currently in effect, and (iv) no agreement, contract or arrangement to which
Parent or any Parent Subsidiary is a party that may result in the payment of any
amount that would not be deductible by reason of Section 280G or Section 404 of
the Code.
SECTION 5.11 Contracts
(a) Section 5.11 of the Parent Disclosure Schedule sets forth a list of
all material written and oral contracts or agreements relating to the Parent,
including without limitation any: (i) contract resulting in a commitment or
potential commitment for expenditure or other obligation or potential
obligation, or which provides for the receipt or potential receipt, involving in
excess of One Hundred Thousand Dollars ($100,000) in any instance, or series of
related contracts that in the aggregate give rise to rights or obligations
exceeding such amount, other than contracts with health plans and providers,
entered into by the Parent's managed care business in the ordinary course of
business, (ii) the twelve (12) largest customer contracts based upon revenues
generated to the Parent; (iii) indenture, mortgage, promissory note, loan
agreement, guarantee or other agreement or commitment for the borrowing or
lending of money or encumbrance of assets involving more than One Hundred
Thousand Dollars ($100,000) in each instance; (iv) agreement which restricts the
Parent from engaging in any line of business or from competing with any other
person; (v) warranties made with respect to products manufactured, packaged,
distributed or sold or services provided by the Parent; (vi) any agreement which
terminates, or gives another party the right to terminate such agreement, upon
the completion of the transaction contemplated by this Agreement; or (vii) any
other contract, agreement, instrument, arrangement or commitment that is
material to the condition (financial or otherwise), results of operation,
assets, properties, liabilities, business or prospects of the Parent
(collectively, and together with all other agreements required to be disclosed
on the Parent
41
<PAGE>
Disclosure Schedule the "Parent Material Contracts"). The Parent has previously
furnished to Parent true, complete and correct copies of all written agreements,
as amended, required to be listed on Section 5.11 of the Parent Disclosure
Schedule.
(b) The Parent Material Contracts are each in full force and effect and
are the valid and legally binding obligations of the Parent and, to the best of
Parent's knowledge, the other parties thereto, enforceable in accordance with
their respective terms, subject only to bankruptcy, insolvency or similar laws
affecting the rights of creditors generally and to general equitable principles.
The Parent has not received notice of its default under any of the Parent
Material Contracts and no event has occurred which, with the passage of time or
the giving of notice or both, would constitute a default by the Parent
thereunder. To the Parent's knowledge, none of the other parties to any of the
Parent Material Contracts is in default thereunder, nor has an event occurred
which, with the passage of time or the giving of notice or both would constitute
a default by such other party thereunder. The Parent has not received notice of
the pending or threatened cancellation, revocation or termination of any of the
Parent Material Contracts, nor are any of them aware of any facts or
circumstances which could reasonably be expected to lead to any such
cancellation, revocation or termination.
(c) Except as otherwise indicated on Section 5.11 of the Parent
Disclosure Schedule, to the Parent's knowledge, after due inquiry, the
continuation, validity and effectiveness of the Parent Material Contracts under
the current terms thereof will in no way be affected by the consummation of the
transactions contemplated by this Agreement.
SECTION 5.12 Litigation
There is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of Parent, threatened against Parent or any Parent
Subsidiary, and, to the knowledge of Parent, there are no existing facts or
circumstances that could reasonably be expected to result in a suit, claim,
action, proceeding or investigation. Parent is not aware of any facts or
circumstances which could reasonably be expected to result in the denial of
insurance coverage under policies issued to Parent and Parent Subsidiaries in
respect of such suits, claims, actions, proceedings and investigations. Neither
Parent nor any Parent Subsidiary is subject to any outstanding order, writ,
injunction or decree.
SECTION 5.13 Environmental Matters
Parent and the Parent Subsidiaries are in material compliance with all
applicable Environmental Laws and all Parent Permits required by Environmental
Laws. All past noncompliance of Parent or any Parent Subsidiary with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future material obligation, cost or
42
<PAGE>
liability. Neither Parent nor any Parent Subsidiary has released a Hazardous
Material at, or transported a Hazardous Material to or from, any real property
currently or formerly owned, leased or occupied by Parent or any Parent
Subsidiary, in violation of any Environmental Law.
43
<PAGE>
SECTION 5.14 Insurance
Parent and each Parent Subsidiary is presently insured, and during each
of the past five calendar years has been insured, against such risks, as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. The Parent reasonably believes that the
policies of fire, theft, liability, medical malpractice, director and officer,
product liability and other insurance maintained with respect to the assets or
businesses of Parent and Parent Subsidiaries provide, adequate coverage against
loss. Parent has made available to Company a complete and correct list as of the
date hereof of all insurance policies maintained by Parent or the Parent
Subsidiaries, and has made available to Company complete and correct copies of
all such policies, together with all riders and amendments thereto. All such
policies are in full force and effect and all premiums due thereon have been
paid to the date hereof. Parent and the Parent Subsidiaries have complied in all
material respects with the terms of such policies.
SECTION 5.15 Properties
Parent and the Parent Subsidiaries have good title, free and clear of
all material mortgages, liens, pledges, charges or other encumbrances to all
their material tangible properties and material assets, real, personal or mixed,
reflected in the Parent's consolidated financial statements for the quarterly
period ended September 30, 1999, as being owned by Parent and the Parent
Subsidiaries as of the date thereof, other than (i) any properties or assets
that have been sold or otherwise disposed of in the ordinary course of business
since the date of such financial statements, (ii) liens disclosed in the notes
to such financial statements and (iii) liens arising in the ordinary course of
business after the date of such financial statements or disclosed in Section
5.15 of the Parent Disclosure Schedule. All buildings, and all fixtures,
equipment and other property and assets that are material to its business on a
consolidated basis, held under leases or sub-leases by Parent or any Parent
Subsidiary are held under valid instruments enforceable in accordance with their
respective terms, subject to applicable laws of bankruptcy, insolvency or
similar laws relating to creditors' rights generally and to general principles
of equity (whether applied in a proceeding in law or equity). Substantially all
of Parent's and the Parent Subsidiaries' equipment in regular use has been
reasonably maintained and is in serviceable condition, reasonable wear and tear
excepted.
SECTION 5.16 Opinion of Financial Advisor
Legg Mason Wood Walker, Incorporated ("Legg Mason") has delivered to
the board of directors of Parent its written opinion to the effect that, as of
the date hereof, the Exchange Ratio is fair to the holders of shares of Parent
Common Stock from a financial point of view (the "Legg Mason Fairness Opinion").
SECTION 5.17 Brokers
Except as set forth on Section 5.17 of Parent Disclosure Schedule, no
broker, finder or
44
<PAGE>
investment banker (other than Legg Mason and J.P. Morgan Securities, Inc.) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of Parent. Parent
has heretofore made available to Parent true, complete and correct copies of all
agreements between Parent, on the one hand, and Legg Mason and/or J.P. Morgan
Securities, Inc., on the other hand, pursuant to which such firms would be
entitled to any payment relating to the Merger.
SECTION 5.18 No Interested Shareholders
To Parent's knowledge, neither the Company nor any "affiliate" or
"associate" of the Company is an "interested shareholder" as those terms are
defined in 607.0901 of the FBCA.
SECTION 5.19 Governmental Authorizations
The Parent and, to the Parent's knowledge, without any independent
investigation, each Ophthalmologist/Optometrist Employee, possesses all
necessary licenses, franchises, permits and other governmental authorizations
(collectively, "Governmental Authorizations"), including, but not limited to,
all licenses, franchises, permits and authorizations for the conduct of the
Parent's business as now conducted, except for those licenses, franchises,
permits and other governmental authorizations the failure of which to possess
could not reasonably be expected to have a Parent Material Adverse Effect.
Except as set forth in Section 5.19 of the Parent Disclosure Schedule, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any material licenses, franchises, permits or authorizations, except
for those licenses, franchises, permits and other governmental authorizations
the failure of which to possess could not reasonably be expected to have a
Parent Material Adverse Effect . All such licenses, franchises, permits and
other authorizations are valid and in full force and effect, except for those
licenses, franchises, permits and other governmental authorizations the failure
of which to possess could not reasonably be expected to have a Parent Material
Adverse Effect. The Parent and to the Parent's knowledge, without any
independent investigation, each Ophthalmologist/Optometrist Employee is
currently in compliance therewith, and the Parent has not received any notice
that any Governmental Entity is considering challenging, revoking, canceling,
restricting, conditioning or not renewing any material license, franchise,
permit or other authorization except for those licenses, franchises, permits and
other governmental authorizations the failure of which to possess could not
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 5.20 Intellectual Property.
The Parent and the Parent Subsidiaries have ownership of or rights to
use each patent, patent application, copyright (whether or not registered),
copyright application, trademark (whether or not registered), trademark
application, trade name, service mark, and other trade secret or proprietary
intellectual property owned by or used in and material to the business of the
Parent and the Parent Subsidiaries, taken as a whole (collectively, a "Parent
Intellectual Property"). The Parent has been provided with a list of all
patents, trademarks and copyrights and applications therefor owned by or
45
<PAGE>
licensed to the Parent or any Subsidiary that are material to the conduct of the
business of the Parent and the Parent Subsidiaries, taken as a whole, as now
operated. To the Parent's Knowledge, none of the previous or current
development, manufacture, marketing or distribution of products or services of
or by the Parent or any Parent Subsidiary infringes the right of any other
person, except for any such infringements that, in the aggregate, have not
resulted in, and could not reasonably be expected to result in, a Parent
Material Adverse Effect. To the Parent's Knowledge, without any independent
investigation, no other person is infringing the rights of the Parent or any
Parent Subsidiary in any such Parent Intellectual Property, except for any such
infringements that, in the aggregate, have not resulted in, and could not
reasonably be expected to result in, a Parent Material Adverse Effect. To the
best of Parent's knowledge, Parent's material software and hardware are year
2000 compliant, except to the extent noncompliance should not or could not
reasonably be expected to cause a Parent Material Adverse Effect.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business by Company Pending the Closing
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Company shall not knowingly take any action a principal purpose
of which is, and the reasonably likely result of which would be, a material
delay in or interference with the consummation of the Merger.
Company agrees that, between the date of this Agreement and the
Effective Time, unless Parent shall otherwise agree in writing, and except as
set forth below or as a result of entering into this Agreement, (x) the
respective businesses of Company and the Company Subsidiaries shall be conducted
only in, and Company and the Company Subsidiaries shall not take any action
except in, the ordinary course of business consistent with past practice and (y)
Company shall use all commercially reasonable efforts to keep available the
services of such of the current officers, significant employees and consultants
of Company and the Company Subsidiaries and shall use commercially reasonable
efforts to preserve the current relationships of Company and the Company
Subsidiaries with such of the corporate partners, customers, suppliers and other
persons with which Company or any Company Subsidiary has significant business
relations in order to preserve substantially intact its business organization.
By way of amplification and not limitation, neither Company nor any Company
Subsidiary shall, between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the following without the
prior written consent of Parent and except as a result of entering into this
Agreement or except as set forth in Section 6.01 of the Company Disclosure
Schedule:
(a) amend or otherwise change its certificate of incorporation
or bylaws or equivalent organizational documents;
46
<PAGE>
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale,
pledge, disposition, grant, transfer, lease, license or encumbrance of,
(i) any shares of capital stock of Company or any Company Subsidiary of
any class, or securities convertible into or exchangeable or
exercisable for any shares of such capital stock, or any options,
warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of Company or any Company
Subsidiary, other than the issuance of shares of Company Common Stock
pursuant to the exercise of stock options theretofore outstanding as of
the date of this Agreement, or (ii) any material property or assets of
Company or any Company Subsidiary, including, but not limited to, the
property or assets of MEC, except providing products and services in
the ordinary course of business consistent with past practice;
(c) (i) except as to business interests in new refractive
centers or ambulatory surgical centers pursuant to the Company's
business plan and after written notice to Parent, acquire (including,
without limitation, by merger, consolidation, or acquisition of stock
or assets) any interest in any corporation, partnership, other business
organization or person or any division thereof; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person (other than Company and
Company Subsidiaries) for borrowed money or make any loans or advances,
other than routine employee loans to employees other than Company
officers (not to exceed $1,000 to any individual), material to the
business, assets, liabilities, financial condition or results of
operations of Company and the Company Subsidiaries, taken as a whole,
other than borrowing under the Company's credit facility for use in
operating the Company in the ordinary course of business, or to pay or
discharge debt or liabilities for an amount less than reflected or
reserved against on the Company Balance Sheet; (iii) terminate, cancel
or request any material change in, or agree to any material change in,
any Company Material Contract; (iv) make or authorize any capital
expenditure, other than capital expenditures in the ordinary course of
business consistent with past practice that have been included in the
fiscal year 2000 budget ("Budget") delivered to Parent and disclosed in
writing to Parent and that are not, in the aggregate, in excess of
$75,000 for Company and the Company Subsidiaries taken as a whole; or
(v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this
Section 6.01(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except that any Company Subsidiary
may pay dividends or make other distributions to Company or any other
Company Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
47
<PAGE>
(f) except as contemplated herein, amend or change the period
(or permit any acceleration, amendment or change) of exercisability of
options granted under the Company Stock Plans or other options and
warrants, reprice any options or warrants, or authorize cash payments
in exchange for any Company Stock Options granted under any of such
plans;
(g) except in connection with the closing of the Practice
Dispositions, amend the terms of, repurchase, redeem or otherwise
acquire, or permit any Company Subsidiary to repurchase, redeem or
otherwise acquire, any of its securities or any securities of any
Company Subsidiary or propose to do any of the foregoing;
(h) enter into any contract or agreement, which, if entered
into prior to the date hereof, would be a Material Contract, amend or
terminate any existing Material Contract, or take any action which
would terminate an existing Material Contract, or would give any party
to an existing Material Contract the right to terminate such Material
Contract;
(i) increase the compensation payable or to become payable to
its directors, officers, consultants or employees, except as required
by the agreements which are set forth in Section 6.01 of the Company
Disclosure Schedule, or grant any rights to severance or termination
pay to, or enter into any employment or severance agreement which
provides benefits upon a change in control of Company that would be
triggered by the Merger with, any director, officer, consultant or
other employee of Company or any Company Subsidiary who is not
currently entitled to such benefits from the Merger, establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer, consultant or employee of Company or
any Company Subsidiary, except to the extent required by applicable
Law, or enter into or amend any contract, agreement, commitment or
arrangement between Company or any Company Subsidiary and any of
Company's directors, officers, consultants or employees;
(j) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than (x) the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against on the consolidated balance
sheet of Company and the consolidated the Company Subsidiaries dated as
of September 30, 1999 included in Company's quarterly report on Form
10-Q for the period then ended (the "Company Balance Sheet") but only
to the extent reflected or to the extent of such reserves or (y)
incurred in the ordinary course of business since September 30, 1999 or
(z) to pay or discharge any such liability for an amount less than
reflected or reserved against on the Company Balance Sheet;
(k) except for accounting changes for discontinued business
operations of the Practice Dispositions and the Corporate Optometry
businesses in accordance with GAAP, make any change with respect to
Company's accounting policies, principles, methods or procedures,
including, without limitation, revenue recognition policies, other than
as required by GAAP;
48
<PAGE>
(l) make any material Tax election or settle or compromise any
material Tax liability; or
(m) except as otherwise permitted in connection with this
Agreement, authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing or to take any
action which would make any of the representations or warranties of
Company contained in this Agreement untrue or incorrect or result in
any of the conditions to the Merger set forth herein not being
satisfied.
SECTION 6.02 Notices of Certain Events
Each of Parent and Company shall give prompt notice to the other of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the Merger; (ii) any notice
or other communication from any Governmental Entity in connection with the
Merger; (iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting Parent or the Parent Subsidiaries or Company or the Company
Subsidiaries, respectively, or that relate to the consummation of the Merger;
(iv) the occurrence of a default or event that, with the giving of notice or
lapse of time or both, will become a default under any Parent Material Contract
or Company Material Contract, respectively; and (v) any change that could
reasonably be expected to have a Parent Material Adverse Effect or a Company
Material Adverse Effect, respectively, or to delay or impede the ability of
either Parent or Company, respectively, to perform their respective obligations
pursuant to this Agreement and to effect the consummation of the Merger.
SECTION 6.03 Access to Information; Confidentiality
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which Parent or Company or any of the Parent
Subsidiaries or the Company Subsidiaries is a party or pursuant to applicable
Law or the regulations or requirements of any stock exchange or other regulatory
organization with whose rules a party hereto is required to comply, from the
date of this Agreement to the Effective Time, Parent and Company shall (and
shall cause the Parent Subsidiaries and Company Subsidiaries, respectively, to)
(i) provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively,
"Representatives")) access at reasonable times upon prior notice to its and its
subsidiaries' officers, employees, agents, properties, offices and other
facilities and to the books and records thereof, and (ii) furnish promptly such
information concerning its and its subsidiaries' business, properties,
contracts, assets, liabilities and personnel as the other party or its
Representatives may reasonably request. All such investigations and access shall
be conducted in a manner as not to interfere unreasonably with the business
operations of the Company. No investigation conducted pursuant to this Section
6.03 shall affect or be deemed to modify any representation or warranty made in
this Agreement.
(b) The parties hereto shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Confidentiality Agreement with respect to
49
<PAGE>
the information disclosed pursuant to this Section 6.03 or pursuant to the
Confidentiality Agreement.
SECTION 6.04 No Solicitation of Transactions
(a) Except as provided in Section 6.04(b) below, Company shall not,
directly or indirectly, and shall cause its Representatives not to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
nonpublic information), any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate with
any person in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize or
permit any of Company's Representatives or subsidiaries, or any Representative
retained by Company's subsidiaries, to take any such action; provided, however,
that nothing contained in this Section 6.04(a) shall prohibit the board of
directors of Company (i) from complying with Rule 14d-9 or 14e-2(a) promulgated
under the Exchange Act with regard to a tender or exchange offer not made in
violation of this Section 6.04(a) or (ii) prior to receipt of the approval by
the stockholders of Company of this Agreement and the Merger from providing
information (subject to a confidentiality agreement at least as restrictive as
the Confidentiality Agreement) in connection with, and negotiating, another
unsolicited, bona fide written proposal regarding a Competing Transaction that
(x) Company's board of directors shall have concluded in good faith, after
considering applicable state law, on the basis of the advice of independent
outside counsel that such action is necessary to prevent Company's board of
directors from violating its fiduciary duties to Company's stockholders under
applicable law, and with respect to which Company's board of directors shall
have determined (based upon the advice of Company's independent financial
advisors) in the proper exercise of its fiduciary duties to Company's
stockholders that the acquiring party is capable of consummating such Competing
Transaction on the terms proposed, and (y) Company's board of directors shall
have determined in the proper exercise of its fiduciary duties to Company's
stockholders that such Competing Transaction provides greater value to the
stockholders of Company than the Merger (based upon the written opinion of
Company's independent financial advisors that such Competing Transaction is
superior from a financial point of view) (any such Competing Transaction being
referred to herein as a "Superior Proposal"). Any violation of the restrictions
set forth in this Section 6.04(a) by any Representative of Company or any of its
Subsidiaries, whether or not such Person is purporting to act on behalf of
Company or otherwise, shall be deemed to be a breach of this Section 6.04(a) by
Company. Company shall notify Parent promptly if any proposal or offer, or any
inquiry or contact with any person with respect thereto, regarding a Competing
Transaction is made, such notice to include the identity of the person making
such proposal, offer, inquiry or contact, and the terms of such Competing
Transaction, and shall keep Parent apprised, on a current basis, no later than
24 hours after any change or modification of any such Competing Transaction, of
the status of such Competing Transaction and of any modifications to the terms
thereof. Company immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to a Competing Transaction. Company shall not release any third party from, or
waive any provision of, any confidentiality or standstill agreement to which it
is a party.
50
<PAGE>
(b) Except as permitted by this Section 6.04(b), the Company's Board of
Directors shall not (i) withdraw, modify or change its approval or
recommendation of this Agreement, or propose publicly to withdraw, modify or
change the Merger or any of the transactions contemplated hereby, (ii) approve
or recommend or publicly propose to approve or recommend a Competing
Transaction, (iii) cause the Company to enter into any letter agreement, letter
of intent, agreement in principle or definitive agreement or similar agreement
providing for a Competing Transaction, or (iv) resolve to do any of the
foregoing, unless prior to the Company Stockholders' Meeting, the Company
receives an unsolicited proposal for a Competing Transaction and the Board of
Directors or the Company determines reasonably and in good faith, after due
investigation, that (a) such proposal is a Superior Proposal based upon the
written opinion of the Company's independent financial advisors that such
Competing Transaction is superior from a financial point of view, (b) the Person
making such Superior Proposal is reasonably capable of consummating such
Superior Proposal in a timely fashion and (c) based upon the advice of
independent outside counsel, the failure of the Board of Directors of the
Company to withdraw or modify its approval or recommendation of this Agreement
or the Merger, or approve or recommend such Superior Proposal, would be
inconsistent with its fiduciary duties under applicable law. In such case, the
Board may withdraw or modify its recommendation, and approve and recommend such
Superior Proposal, provided the Board of Directors of the Company (i) at least
five (5) Business Days prior to taking such action, provides to Parent written
notice of the Company's intention to accept the Superior Proposal, (ii) during
such period, gives parent a reasonable opportunity to propose modifications to
the Merger Consideration and negotiates such modifications in good faith with
the objective of allowing Parent to match the Superior Proposal and (iii) at the
end of such period, (A) reasonably and in good faith continues to believe that
the other proposal is a Superior Proposal, (B) simultaneously terminates this
Agreement, (C) concurrently causes the Company to enter into a definitive
acquisition agreement with respect to such Superior Proposal and (D)
concurrently pays to Parent the Termination Fee and Parent's Expenses as
provided in Section 9.05. Nothing contained in this Section 6.04(b) shall
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act;
provided that the Company does not withdraw or modify its position with respect
to the Merger or approve or recommend a proposal for a Competing Transaction
except as provided in this Section 6.04(b).
SECTION 6.05 Tax-Free Transaction
From and after the date of this Agreement, each party hereto shall use
all reasonable efforts to cause the Merger to qualify, and shall not knowingly
take any actions or cause any actions to be taken which could reasonably be
expected to prevent the Merger from qualifying as a "reorganization" under
Section 368(a) of the Code.
SECTION 6.06 Control of Operations
Nothing contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the operations of Company and the
Company Subsidiaries prior to the Effective Time. Prior to the Effective Time,
Company shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
51
<PAGE>
SECTION 6.07 Further Action; Consents; Filings
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use all reasonable efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger, (ii) obtain from any Governmental Entity any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent or Company or any of their respective
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger and (iii) make all necessary
filings, and thereafter make any other required or appropriate submissions, with
respect to this Agreement and the Merger required under (A) the rules and
regulations of the AMEX or the NNM, as the case may be, (B) the Securities Act,
the Exchange Act and any other applicable Federal or state securities Laws, (C)
the HSR Act, if any, and (D) any other applicable Law. The parties hereto shall
cooperate and consult with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
parties and their advisors prior to filing, and none of the parties shall file
any such document if any of the other parties shall have reasonably objected to
the filing of such document. No party shall consent to any voluntary extension
of any statutory deadline or waiting period or to any voluntary delay of the
consummation of the Merger at the behest of any Governmental Entity without the
consent and agreement of the other parties hereto, which consent shall not be
unreasonably withheld or delayed. The Parent shall not be required to divest
itself or the Company of any assets or business in order to obtain approval in
connection with the HSR Act or otherwise.
(b) Each of Company and Parent will give (or will cause their
respective subsidiaries to give) any notices to third persons, and use, and
cause their respective subsidiaries to use, reasonable efforts to obtain any
consents from third persons necessary, proper or advisable (as determined in
good faith by Parent with respect to such notices or consents to be delivered or
obtained by Company) to consummate the transactions contemplated by this
Agreement.
SECTION 6.08 Additional Reports
Company and Parent shall each furnish to the other copies of any
reports of the type referred to in Sections 4.07 and 5.06, which it files with
the SEC on or after the date hereof, and Company and Parent, as the case may be,
covenant and warrant that as of the respective dates thereof, such reports will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Any
unaudited consolidated interim financial statements included in such reports
(including any related notes and schedules) will fairly present in all material
respects the financial position of Company and its consolidated subsidiaries or
Parent and its consolidated subsidiaries, as the case may be, as of the dates
thereof and the results of operations and changes in financial position or other
information including therein for the periods or as of the date then ended
(subject, where appropriate, to normal year-end adjustments), in each case in
accordance
52
<PAGE>
with past practice and U.S. GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto).
SECTION 6.09 Conduct of Business by Parent
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Parent shall not knowingly take any action a principal purpose
of which is, and the reasonably likely result of which would be, a material
delay in or interference with the consummation of the Merger. Neither Parent nor
any Parent Subsidiary shall, between the date of this Agreement and the
Effective Time, directly or indirectly, do, or agree to do, any of the following
without the prior written consent of Company, except as a result of entering
into or as contemplated by this Agreement or except as set forth in Section 6.09
of the Parent Disclosure Schedule:
(a) amend or otherwise change its certificate of incorporation
or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale,
pledge, disposition, grant, transfer, lease, license or encumbrance of,
(i) more than outstanding 20% of the shares of capital stock of Parent
or any shares of capital stock of a Parent Subsidiary of any class, or
securities convertible into or exchangeable or exercisable for any
shares of such capital stock, or any options, warrants or other rights
of any kind to acquire more than 20% of the outstanding shares of such
capital stock or any other ownership interest (including, without
limitation, any phantom interest), of Parent or any Parent Subsidiary,
other than the issuance of shares of Parent common stock pursuant to
the exercise of stock options granted pursuant to the Parent Stock
Plans, or (ii) any material property or material assets of Parent or
any Parent Subsidiary, except providing products and services in the
ordinary course of business consistent with past practice;
(c) (i) an acquisition (including, without limitation, by
merger, consolidation, or acquisition of stock or assets) of any
interest in any corporation, partnership, other business organization
or person or any division thereof which would be considered a
"Significant Subsidiary" of the Parent (after taking into effect the
Merger); (ii) except in connection with an acquisition permitted
pursuant to the foregoing clause (i), incur any material indebtedness
for borrowed money or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person
which are material to the Parent (other than Parent and Parent
Subsidiaries) for borrowed money or make any loans or advances,
material to the business, assets, liabilities, financial condition or
results of operations of Parent and the Parent Subsidiaries, taken as a
whole, other than borrowings under the Parent's credit facility for use
in operating the business; or (iii) enter into or amend any contract,
agreement, commitment or arrangement in which the Parent is obligated
to perform and, if fully performed, would not be permitted under this
Section 6.09(c);
53
<PAGE>
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except that any Parent Subsidiary
may pay dividends or make other distributions to Parent or any other
Parent Subsidiary;
(e) reclassify, combine, split or subdivide any of its capital
stock;
(f) amend or change the period (or permit any acceleration,
amendment or change) of exercisability of options granted under the
Parent Stock Plans or other options and warrants or take any action to
reprice any such options and warrants;
(g) authorize or enter into any formal or informal agreement
or otherwise make any commitment to do any of the foregoing or take any
action which would result in any of the conditions to the merger set
forth herein not being satisfied.
(h) take any action resulting in the delisting of Parent from
the Amex; and
(i) take any action resulting in a Parent Material Adverse
Effect.
SECTION 6.10 Post Merger Directors and Officers
The Board of Directors of Parent will take all actions necessary to
increase the number of members of the Board of Directors of Parent and to cause
three designees of the Company, with one such designee being an independent
director as determined under the new rules of the AMEX (the "Company Nominees"),
to be appointed to the Board of Directors of Parent as of the Effective Time,
each Company Nominee to hold office in accordance with the Certificate of
Incorporation and By-laws of Parent.
SECTION 6.11 Bank Restructuring
The Company and the Company's Subsidiaries will use commercially
reasonable efforts to enter into a Letter of Intent (the "Letter of Intent")
with Bank of Montreal (the "Company Bank") no later than forty-five (45) days
after the execution of this Agreement, which provides, among other things, that
each of the parties to the Existing Credit Agreement agrees to proceed in good
faith to amend the Existing Credit Agreement upon consummation of the Merger on
terms and provisions which in the aggregate are no less favorable to the Company
than those contained in Parent's existing credit facility with Bank Austria and
which are acceptable to each of Parent and the Company, and that Parent is a
third party beneficiary to the Letter of Intent, and the Company shall use its
commercially reasonable efforts to finalize the amendment in accordance with the
Letter of Intent. The Parent will use commercially reasonable efforts to enter
into a Letter of Intent (the "Bank Austria Letter of Intent") with Bank Austria,
no later than forty-five (45) days after the execution of this Agreement, which
provides, among other things, that each of the parties to the Bank Austria
Credit Agreement agrees to proceed in good faith to amend the Bank Austria
Credit Agreement upon consummation of the Merger upon terms and provisions which
are acceptable to
54
<PAGE>
each of Parent and the Company, and Parent shall use its best efforts to
finalize the amendment in accordance with the Bank Austria Letter of Intent. The
parties agree to consolidate the loans into one senior credit facility with
Company Bank and Bank Austria serving as co-agents in the event the banks
request the same.
SECTION 6.12 Disposition of Practices
The Company will use its commercially reasonable efforts to (i)
complete the termination of all of its management relationships with all of its
Ophthalmology and Optometry Practices (including the Corporate Optometry
practices), including any practice that the Company is obligated under a
contract or otherwise to purchase, all of which Ophthalmology and Optometry
Practices (including the Corporate Optometry practices) are set forth in Section
6.12 of the Company Disclosure Schedule (the "Practices"); provided, however,
that such Practices shall not include for the purposes of this Section 6.12 the
Company's Talbert operation in Arizona ("Talbert") if the Parent and the Company
agree in writing within 45 days from the date hereof to maintain Talbert and
(ii) transfer all of the assets and leases relating to the Practices back to the
Practices and cause or have an agreement which will cause all of such Practices
to assume all liabilities and obligations relating to such Practices
(collectively, the "Practice Dispositions"), on such terms which are
satisfactory to the Parent, pursuant to which the Company shall obtain releases
from the Practices containing language substantially the same as set forth on
Annex J hereto whereby the Company will be unconditionally and irrevocably
released and forever discharged from all rights, claims, demands, obligations,
liabilities and damages (collectively, the "Obligations"), whether accrued or
unaccrued, asserted or unasserted and whether known or unknown relating to or in
connection with the Company's arrangements and agreements with the Practices
which ever existed, now exist or may hereafter exist, except with respect to any
Obligations incurred after the Effective Time pursuant to ongoing relationships
with Practices approved by Parent. The Company will cancel any options to
purchase the Company's securities held by such Practices or their stockholders,
affiliates or related parties in connection with the Practice Dispositions,
effective no later than the date of the closing of such Practice Dispositions.
The net proceeds received by the Company in connection with the Practice
Dispositions will be used substantially by the Company to reduce the amount
outstanding under the Existing Credit Agreement and for operations and the
settlement of debts approved by the Company Bank and Parent.
SECTION 6.13 Financing Commitments
The Parent will use its commercially reasonable efforts to enter into a
financing commitment ("Financing Term Sheet") on or before the date that is
forty-five (45) days from the date hereof, which commitment may be subject to
the exception, among others, that the investor shall be satisfied with the 1999
year-end audited financial statements of the Company, and which commitment
involves a Financing in an amount not less than Thirty Million Dollars
($30,000,000) (the "Financing") through the issuance of equity, equity linked or
subordinated debt securities in one or more public or private transactions,
which commitment terms shall be reasonably acceptable to Parent and Company, and
Parent shall use its commercially reasonable efforts to finalize the Financing
in accordance with such commitment.
55
<PAGE>
SECTION 6.14 Standstill Agreement
The Company will use its commercially reasonable efforts to enter into
a Standstill Agreement (the "Standstill Agreement") with the Company Bank within
forty-five (45) days of the execution of this Agreement.
SECTION 6.15 Voting
Each of the stockholders who granted an irrevocable proxy pursuant to
the Company Stockholder Agreement and the Parent Stockholder Agreement, as the
case may be, will vote any shares of the Company's Common Stock held by them, or
which they have the right to vote, in favor of approval of the Merger, or the
issuance of shares in connection with the Merger, as the case may be, in person,
or by proxy.
SECTION 6.16 Waiver
The Company will use its commercially reasonable efforts to obtain, on
or before the date that is 45 days after the date of this Agreement, (i) a
release and waiver (the "Block Waiver") of all restrictions set forth in Section
10, and any provisions related thereto, of that certain Asset Purchase
Agreement, dated June 4, 1999, among Block Vision Inc., Block Buying Group LLC
and the Company (the "Block Agreement") or (ii) a final nonappealable judgment
from a Florida court of competent jurisdiction holding that Section 10 of the
Block Agreement, and the provisions related thereto, are not enforceable against
Parent.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Registration Statement; Joint Proxy Statement
(a) As promptly as practicable after the execution of this Agreement,
Parent and Company shall jointly prepare and shall file with the SEC a document
or documents that will constitute (i) the prospectus forming part of the
registration statement on Form S-4 of Parent (together with all amendments
thereto, the "Registration Statement"), in connection with the registration
under the Securities Act of Parent Common Stock to be issued to Company's
stockholders pursuant to the Merger and (ii) the joint proxy statement with
respect to the Merger relating to the special meetings of Company's stockholders
to be held to consider approval of this Agreement and the Merger (the "Company
Stockholders' Meeting") and of Parent's stockholders to be held to consider
approval of the issuance of Parent Common Stock (the "Share Issuance") to
Company's stockholders pursuant to the Merger (the "Parent Stockholders'
Meeting") (together with any amendments thereto, the "Joint Proxy Statement").
Copies of the Joint Proxy Statement shall be provided to the AMEX and the NNM in
accordance with its rules. Each of the parties hereto shall use all reasonable
efforts to cause the Registration Statement to become effective as promptly as
practicable after the date hereof,
56
<PAGE>
and, prior to the effective date of the Registration Statement, the parties
hereto shall take all action required under any applicable Laws in connection
with the issuance of shares of Parent Common Stock pursuant to the Merger.
Parent or Company, as the case may be, shall furnish all information concerning
Parent or Company as the other party may reasonably request in connection with
such actions and the preparation of the Registration Statement and the Joint
Proxy Statement. As promptly as practicable after the effective date of the
Registration Statement, the Joint Proxy Statement shall be mailed to the
stockholders of Company and of Parent. Each of the parties hereto shall cause
the Joint Proxy Statement to comply as to form and substance as to such party in
all material respects with the applicable requirements of (i) the Exchange Act,
(ii) the Securities Act, (iii) the rules and regulations of the AMEX and the
NNM.
(b) The Joint Proxy Statement shall include (i) the approval of the
Merger and the recommendation of the board of directors of Company to Company's
stockholders that they vote in favor of approval of this Agreement and the
Merger, subject to the right of the board of directors of the Company to
withdraw its recommendation and recommend a Superior Proposal in compliance with
Section 6.04 of this Agreement, and (ii) the opinion of PaineWebber referred to
in Section 4.19. The Joint Proxy Statement shall include (A) the approval of the
Share Issuance and the recommendation of the board of directors of Parent to
Parent's stockholders that they vote in favor of approval of the Share Issuance,
and (B) the opinion of Legg Mason referred to in Section 5.16.
(c) No amendment or supplement to the Joint Proxy Statement or the
Registration Statement shall be made without the approval of Parent and Company,
which approval shall not be unreasonably withheld or delayed. Each of the
parties hereto shall advise the other parties hereto, promptly after it receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop
order, of the suspension of the qualification of the Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or of any request by the SEC for amendment of the Joint Proxy Statement or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(d) None of the information supplied by Company for inclusion or
incorporation by reference in the Registration Statement or the Joint Proxy
Statement shall, at the respective times filed with the SEC or other regulatory
agency and, in addition, (A) in the case of the Joint Proxy Statement, at the
date it or any amendments or supplements thereto are mailed to stockholders of
Parent and Company, at the time of the Company Stockholders' Meeting, at the
time of the Parent Shareholders' Meeting and at the Effective Time and (B) in
the case of the Registration Statement, when it becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event or circumstance relating to Company or any Company
Subsidiary, or their respective officers or directors, should be discovered by
Company that should be set forth in an amendment or a supplement to the
Registration Statement or the Joint Proxy Statement, Company shall promptly
inform Parent. All documents that Company is responsible for filing with the SEC
in connection with the Merger will comply as to form in all
57
<PAGE>
material respects with the applicable requirements of the rules and regulations
of the Securities Act and the Exchange Act.
(e) None of the information supplied by Parent for inclusion or
incorporation by reference in the Registration Statement or the Joint Proxy
Statement shall, at the respective times filed with the SEC or other regulatory
agency and, in addition, (A) in the case of the Joint Proxy Statement, at the
date it or any amendments or supplements thereto are mailed to stockholders of
Parent and Company, at the time of Company Stockholders' meeting, at the time of
the Parent Shareholders' Meeting and at the Effective Time and (B) in the case
of the Registration Statement, when it becomes effective under the Securities
Act and at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If, at any time prior to the Effective Time, any
event or circumstance relating to Parent or any Parent Subsidiary, or their
respective officers or directors, should be discovered by Parent that should be
set forth in an amendment or a supplement to the Registration Statement or the
Joint Proxy Statement, Parent shall promptly inform Company. All documents that
Parent is responsible for filing with the SEC in connection with the Merger will
comply as to form in all material respects with the applicable requirements of
the rules and regulations of the Securities Act and the Exchange Act.
SECTION 7.02 Stockholders' Meetings
Company shall call and hold the Company Stockholders' Meeting and
Parent shall call and hold the Parent Stockholders' Meeting as promptly as
practicable after the date hereof for the purpose of voting upon the approval of
this Agreement and the Merger or the Share Issuance, as the case may be,
pursuant to the Joint Proxy Statement, and Company and Parent shall use all
reasonable efforts to hold the Parent Stockholders' Meeting and the Company
Stockholders' Meeting on the same day and as soon as practicable after the date
on which the Registration Statement becomes effective. Nothing herein shall
prevent the Company or the Parent from adjourning or postponing the Company
Stockholders' Meeting or the Parent Stockholders' Meeting, as the case may be,
if there are insufficient shares of Company Common Stock or Parent Common Stock,
as the case may be, necessary to conduct business at their respective meetings
of the stockholders. Unless Company's board of directors has withdrawn its
recommendation of this Agreement and the Merger in compliance with Section 6.04.
Company shall use all reasonable efforts to solicit from its stockholders
proxies in favor of the approval of this Agreement and the Merger pursuant to
the Joint Proxy Statement and shall take all other action necessary or advisable
to secure the vote or consent of stockholders required by the FBCA or applicable
other stock exchange requirements to obtain such approval. Parent shall use all
reasonable efforts to solicit from its stockholders proxies in favor of the
Share Issuance pursuant to the Joint Proxy Statement and shall take all other
action necessary or advisable to secure the vote or consent of stockholders
required by the FBCA or applicable stock exchange requirements to obtain such
approval. Each of the parties hereto shall take all other action necessary or,
in the opinion of the other parties hereto, advisable to promptly and
expeditiously secure any vote or consent of stockholders required by applicable
Law and such party's certificate of incorporation and bylaws to effect the
Merger.
58
<PAGE>
SECTION 7.03 Affiliates
(a) Company will use reasonable efforts to obtain an executed letter
agreement substantially in the form of Annex D hereto from (i) each person
identified in Section 4.18 of the Company Disclosure Schedule within 15 days
following the execution and delivery of this Agreement and (ii) from any person
who, to the knowledge of Company, may be deemed to have become an affiliate of
Company after the date of this Agreement and prior to the Effective Time as soon
as practicable after attaining such status. The foregoing notwithstanding,
Parent shall be entitled to place legends as specified in the Affiliate
Agreement on the certificates evidencing any of the Parent Common Stock to be
received by (i) any affiliate of Company or (ii) any person Parent reasonably
identifies (by written notice to Company) as being a person who is an
"affiliate" within the meaning of Rule 145 promulgated under the Securities Act,
and to issue appropriate stop transfer instructions to the transfer agent for
such Parent Common Stock, consistent with the terms of the Affiliate Agreement,
regardless of whether such person has executed Affiliate Agreement and
regardless of whether such person's name and address appear on Section 4.18 of
the Company Disclosure Schedule.
SECTION 7.04 Directors' and Officers' Indemnification and Insurance
(a) Parent and the Merger Sub agree that all rights to indemnification,
advancement of expenses, exculpation, limitation of liability and any and all
similar rights now existing in favor of each present and former director,
officer, employee and agent of Company and each Company Subsidiary
(collectively, the "Indemnified Parties") as provided in the Company's present
charter or by-laws in effect on the date hereof, shall survive the Merger and
shall continue in full force and effect for a period of five years from the
Effective Time, which provisions shall not be amended, repealed or otherwise
modified for a period of five years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at any time
prior to the Effective Time were directors, officers, employees or agents of the
Company, unless such modification shall be required by law, and Parent agrees to
cause the Surviving Corporation to comply with its obligations thereunder;
provided, however, that in the event any claim or claims are asserted or made
within such five-year period, all rights to indemnification in respect to any
such claim or claims shall continue until the disposition of any and all such
claims.
(b) In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or Surviving Corporation or entity
of such consolidation or merger or (ii) transfers a material amount of its
properties and assets to any person in a single transaction or a series of
transactions, then, and in each such case, Parent will make or cause to be made
proper provision so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, assume the indemnification
obligations described herein for the benefit of the Indemnified Parties as a
condition to such merger, consolidation or transfer becoming effective.
(c) The provisions of this Section 7.04 are (i) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties and (ii)
in addition to, and not in substitution for, any
59
<PAGE>
other rights to indemnification or contribution that any such person may have by
contract or otherwise.
(d) Parent agrees, as soon as practicable after the Effective Time, to
cause the Surviving Corporation to use commercially reasonable efforts to
purchase tail coverage, if available, for the directors' and officers' liability
insurance policies currently maintained by Company covering a period of five
years after the Effective Time; provided, however, that in no event shall Parent
be required to expend in excess of $250,000 on the premium for such five year
tail coverage. To the extent that the premium for such tail coverage exceeds
$250,000, Surviving Corporation shall pay such additional premium amount (the
"Additional Premium Amount"). In the event that such tail coverage is not
available, the Surviving Corporation shall have no obligation to purchase such
tail coverage, but shall maintain in effect the Company's directors' and
officers' liability insurance policies in effect as of the date hereof or, if
not available, directors' and officers' liability insurance policies covering
the directors and officers of the Company (and their respective heirs and
executors, if such coverage may be obtained at no additional cost), with
coverages and other terms substantially as favorable to such directors and
officers as is currently in effect; provided, however, that in no event shall
the Surviving Corporation be required to expend in any one year in excess of
150% of the annual premium currently paid by Company for such coverage, which
current premium amount is set forth in Section 7.04 of the Company Disclosure
Schedule, and if the premium for such coverage exceeds such amount, Parent shall
purchase a policy with the greatest coverage available for such 150% of the
annual premium; and provided, further, that the cumulative annual premiums to be
paid for such policies over a five-year period shall be projected by Parent's
insurance broker in good faith on or prior to the Exchange Ratio Adjustment Date
(the "Projected Cumulative Amount"). (The amount by which the Projected
Cumulative Amount exceeds $250,000 is herein referred to as the "Excess
Projected Cumulative Amount".)
SECTION 7.05 No Shelf Registration
Parent shall not be required to amend or maintain the effectiveness of
the Registration Statement for the purpose of permitting resale of the shares of
Parent Common Stock received pursuant hereto by the persons who may be deemed to
be "affiliates" of Company within the meaning of Rule 145 promulgated under the
Securities Act.
SECTION 7.06 Public Announcements
The initial press release concerning the Merger shall be a joint press
release and, thereafter, Parent and Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or the Merger and shall not issue any such press release or
make any such public statement without the prior written approval of the other,
except to the extent required by applicable Law or the requirements of the rules
and regulations of the AMEX and the NNM, in which case the issuing party shall
use all reasonable efforts to consult with the other party before issuing any
such release or making any such public statement.
SECTION 7.07 AMEX Listing
60
<PAGE>
Prior to the Effective Time, Parent shall file with the AMEX a
Notification Form for Listing of Additional Shares with respect to the Parent
Common Stock issued or issuable in connection with the Merger.
SECTION 7.08 Blue Sky
Parent shall use all reasonable efforts to obtain prior to the
Effective Time all necessary permits and approvals required under Blue Sky Laws
to permit the distribution of the shares of Parent Common Stock to be issued in
accordance with the provisions of this Agreement.
SECTION 7.09 Acquisition of Company Capital Stock
Prior to the Effective Time, neither Parent, nor any of Parent
Subsidiaries or Affiliates will, nor will they assist or encourage others to,
directly or indirectly, acquire or attempt to acquire ownership of more than
five percent (5%) of the Company's capital stock.
Prior to the Effective Time, neither Company, nor any of Company
Subsidiaries or Affiliates will, nor will they assist or encourage others to,
directly or indirectly, acquire or attempt to acquire ownership of more than
five percent (5%) of Parent's capital stock.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate
the Merger
The obligations of the parties hereto to consummate the Merger are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following conditions:
(a) the Registration Statement shall have been declared
effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceeding for that purpose shall have
been initiated by the SEC and not concluded or withdrawn;
(b) this Agreement and the Merger shall have been duly
approved by the requisite vote of stockholders of Company in accordance
with the FBCA and by the requisite vote of the stockholders of Parent
in accordance with the DGCL and the rules of the AMEX;
(c) no court of competent jurisdiction shall have issued or
entered any order, writ, injunction or decree, and no other
Governmental Entity shall have issued any order, which is then in
effect and has the effect of making the Merger illegal or otherwise
prohibiting its consummation;
61
<PAGE>
(d) any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act or any other
applicable competition, merger control or similar Law shall have
expired or been terminated;
(e) all material consents, approvals and authorizations
legally required to be obtained to consummate the Merger shall have
been obtained from all Governmental Entities;
(f) the shares of Parent Common Stock to be issued in the
Merger shall be registered under the Securities Act and shall have been
authorized for listing on the AMEX, subject to notice of issuance;
(g) the Parent shall have entered into an amendment to its
existing credit agreement with Bank Austria having terms substantially
in accordance with the terms outlined in the Bank Austria Letter of
Intent referred to in Section 6.11 hereof;
(h) the Parent shall have obtained not less then $30,000,000
from the Financing pursuant to the terms contained in the Financing
Term Sheet described in Section 6.13;
(i) on or before Exchange Ratio Adjustment Date, all consents
of third parties required pursuant to the terms of any Company Material
Contract and any Parent Material Contract as a result of the Merger
shall have been obtained including those specified in Section 8.01(i)
of the Parent Disclosure Schedule and 8.01(i) of the Company Disclosure
Schedule, except where the failure to obtain, individually or in the
aggregate, any such consent(s) could not reasonably be expected to
result in, individually or in the aggregate, a Company Material Adverse
Effect or Parent Material Adverse Effect, as the case may be;
(j) Shumaker, Loop & Kendrick, special counsel to Company, or
such other law firm or professional services firm reasonably acceptable
to Parent (including any "Big 6" accounting firm) shall have issued its
opinion, such opinion dated on the date of the Closing, addressed to
Company, and reasonably satisfactory to it and the Purchaser, based
upon customary representations of Company and Parent and customary
assumptions, to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code (the
"Tax Opinion"), which opinion shall not have been withdrawn or modified
in any material respect; provided, however, that if such firm does not
render such opinion, this condition shall nonetheless be deemed
satisfied if such opinion, dated as of the date of the Closing (k) The
Company shall have entered into the Letter of Intent with Company Bank
within 45 days of the date of this Agreement, is rendered by counsel to
Parent or any "Big 6" accounting firm; and
(k) The Company shall have entered into the Letter of Intent
with the Company Bank within 45 days of the date of this Agreement.
62
<PAGE>
SECTION 8.02 Conditions to the Obligations of Company
The obligations of Company to consummate the Merger, or to permit the
consummation of the Merger are subject to the satisfaction or, if permitted by
applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent
contained in this Agreement shall be true, complete and correct in all
material respects (other than representations and warranties subject to
materiality or "material adverse effect" qualifiers which shall be
true, complete and correct in all respects) both when made and on and
as of the Effective Time as if made at and as of the Effective Time
(other than representations and warranties which address matters only
as of a certain date which shall be so true, complete and correct as of
such certain date), and Company shall have received a certificate
signed by the Chief Financial Officer of Parent on behalf of the Parent
to such effect;
(b) Parent shall have performed or complied in all material
respects with all covenants required by this Agreement to be performed
or complied with by it on or prior to the Effective Time and Company
shall have received a certificate signed by the Chief Financial Officer
of Parent on behalf of the Parent to that effect; and
(c) There shall have been no Parent Material Adverse Effect
since the date of this Agreement.
SECTION 8.03 Conditions to the Obligations of Parent
The obligations of Parent to consummate the Merger are subject to the
satisfaction or waiver of the following further conditions:
(a) Each of the representations and warranties of Company
contained in this Agreement shall be true, complete and correct in all
material respects, (other than representations and warranties subject
to materiality or "material adverse effect" qualifiers which shall be
true, complete and correct in all respects) both when made and on and
as of the Effective Time as if made at and as of the Effective Time
(other than representations and warranties which address matters only
as of a certain date which shall be so true, complete and correct as of
such certain date), and Parent shall have received a certificate signed
by the Chief Executive Officer on behalf of the Company of Company to
such effect;
(b) Company shall have performed or complied in all material
respects with all covenants required by this Agreement to be performed
or complied with by it on or prior to the date on which they are to be
performed as specifically set forth herein or the Effective Time, as
applicable, and Parent shall have received a certificate of the Chief
Executive Officer signed by Company on behalf of the Company to that
effect;
63
<PAGE>
(c) There shall have been no Company Material Adverse Effect
since the date of this Agreement;
(d) The Parent shall have executed, by the Exchange Ratio
Adjustment Date, agreements with each of Richard Lindstrom, M.D. and
Bruce C. Maller which provide for the continuation of services provided
by them, upon terms which are satisfactory to Parent;
(e) On or before the Exchange Ratio Adjustment Date, the
officers, directors, and shareholders of Company listed on Annex E
hereto (the "Company Insiders") shall have entered into lock-up
agreements in the form set forth as Annex F hereto;
(f) The Company shall not have received any notice of default
or notice of any pending or threatened cancellation, revocation or
termination or be aware of any facts or circumstances which could
reasonably be expected to lead to any such cancellation, revocation, or
termination under any of the Company's managed care contracts which,
after giving effect to any new managed care business entered into after
the date hereof (except for any contracts which have been projected in
any Company business plan for year 2000, previously delivered to
Parent), cause, or could reasonably likely cause, individually or
collectively, a material adverse effect on the Company's managed care
business as a stand alone business. The determination of the overall
loss of managed care business under this Section 8.03(f) shall be made
without regard to any disclosures contained in the Company Disclosure
Schedule, except that no account shall be taken of the loss of business
under any managed care contracts specifically identified under Section
4.08 of the Company Disclosure Schedule. The Parent shall have received
a certificate of the Chief Executive Officer of the Company to such
affect; and
(g) On or before the Exchange Ratio Adjustment Date, the
Company shall have divested all of its business and assets relating to
the Corporate Optometry practice and the Company shall have received
from all of the Corporate Optometry practices a release in
substantially the form set forth on Annex J hereto, except as the
parties may otherwise agree in writing with respect to Talbert.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite adoption and
approval of this Agreement, as follows:
64
<PAGE>
(a) by mutual written consent duly authorized by the boards of
directors of each of Parent and Company;
(b) by either Parent or Company, if the Effective Time shall
not have occurred on or before August 31, 2000; provided, however, that
the right to terminate this Agreement under this Section 9.01(b) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement shall have principally caused, or resulted in, the
failure of the Effective Time to occur on or before such date;
(c) by either Parent or Company, if any Governmental Order,
writ, injunction or decree preventing the consummation of the Merger
shall have been entered by any court of competent jurisdiction and
shall have become final and nonappealable;
(d) by Parent, if (i) the board of directors of Company
withdraws, modifies or changes its recommendation of this Agreement or
the Merger in a manner adverse to Parent or its stockholders, (ii) the
board of directors of Company shall have recommended to the
stockholders of Company a Competing Transaction, (iii) the Company
fails to comply with Section 6.04, (iv) a Competing Transaction shall
have been announced or otherwise publicly known and the board of
directors of Company shall have (A) failed to recommend against
acceptance of such by its stockholders (including by taking no
position, or indicating its inability to take a position, with respect
to the acceptance by its stockholders of a Competing Transaction
involving a tender offer or exchange offer), (B) failed to reconfirm
its approval and recommendation of this Agreement and the transactions
contemplated hereby within 5 Business Days after Parent requests in
writing that such recommendation be reconfirmed or (C) determined that
such Competing Transaction was a Superior Proposal and takes any of the
actions allowed by clause (ii) of Section 6.04, or (v) the board of
directors of Company resolves to take any of the actions described
above;
(e) by Parent or Company, if (i) this Agreement and the Merger
shall fail to receive the requisite votes for approval at the Company
Stockholders' Meeting or any adjournment or postponement thereof or
(ii) if the Share Issuance shall fail to receive the requisite votes
for approval at the Parent Shareholders' Meeting or any adjournment or
postponement thereof;
(f) by Parent, upon a material breach of any representation or
warranty on the part of Company set forth in this Agreement, upon a
material breach of any covenant or agreement on the part of the Company
set forth in this Agreement or if any material representation or
warranty of Company shall have become untrue, incomplete or incorrect
in any material respect, in any case such that the conditions set forth
in Section 8.03 would not be satisfied (a "Terminating Company
Breach"); provided, however, that if such Terminating Company Breach is
curable by Company through the exercise of its reasonable efforts
within 20 days and for so long as Company continues to exercise such
reasonable efforts, Parent may not terminate this Agreement under this
Section 9.01(f) during such 20
65
<PAGE>
day period; and provided, further that the preceding proviso shall not
in any event be deemed to extend any date set forth in paragraph (b) of
this Section 9.01; or
(g) by Company, upon material breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any material representation or warranty of Parent
shall have become untrue, incomplete or incorrect in any material
respect, in either case such that the conditions set forth in Section
8.02 would not be satisfied (a "Terminating Parent Breach"); provided,
however, that if such Terminating Parent Breach is curable by Parent
through the exercise of its reasonable efforts within 20 days and for
so long as Parent continues to exercise such reasonable efforts,
Company may not terminate this Agreement under this Section 9.01(g)
during such 20 day period; and provided, further that the preceding
proviso shall not in any event be deemed to extend any date set forth
in paragraph (b) of this Section 9.01.
(h) by a party, if on or before the applicable date set forth
in Article VIII , any condition set forth in Article VIII which is
required to be met on or before such date has not been so met by the
other party; provided, however, that if such failed condition is
curable by the other party through the exercise of its reasonable
efforts within 20 days and for so long as such other party continues to
exercise such reasonable efforts, the terminating party may not
terminate this Agreement under this Section 9.01(h); and provided,
further that the preceding proviso shall not in any event be deemed to
extend any date set forth in paragraph (b) of this Section 9.01;
(i) by the Company, pursuant to Section 6.04, in the event the
Company has complied with all the provisions of Section 6.04 and has
determined to accept a Superior Proposal; provided that the Company
shall have provided Parent with one Business Day's prior written notice
of the Company's decision to so terminate (the "Company Termination
Notice"). The Company Termination Notice shall indicate in reasonable
detail the terms and conditions of such Superior Proposal, including,
without limitation, the amount and form of the proposed consideration
and whether such Superior Proposal is subject to any material
conditions.
In the event either party shall terminate this Agreement pursuant to
Section 9.01, neither Parent nor any of Parent's Subsidiaries will, nor
will they assist or encourage others to, directly or indirectly, for a
period of two (2) years after termination of this Agreement, acquire or
attempt to acquire ownership or more than five percent (5%) of the
Company's capital stock.
The right of any party hereto to terminate this Agreement pursuant to
this Section 9.01 will remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 9.02 Effect of Termination
66
<PAGE>
Except as provided in Section 9.05, in the event of termination of this
Agreement pursuant to Section 9.01 or otherwise, this Agreement shall forthwith
become void, there shall be no liability under this Agreement or otherwise on
the part of any party hereto or any of its affiliates or any of its or their
officers or directors, and all rights and obligations of each party hereto shall
cease. No termination of this Agreement shall affect the obligation of the
parties contained in the Confidentiality Agreements, which shall survive
termination of this Agreement and remain in full force and effect in accordance
with their terms.
SECTION 9.03 Amendment
This Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective boards of directors at any time prior to the
Effective Time; provided, however, that, after the approval of this Agreement by
the stockholders of Company, no amendment may be made that changes the amount or
type of consideration into which Company common stock will be converted pursuant
to this Agreement. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 9.04 Waiver
At any time prior to the Effective Time, any party hereto may (a)
extend the time for or waive compliance with the performance of any obligation
or other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance by the other party with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
SECTION 9.05 Termination Fee; Expenses
(a) Except as set forth in this Section 9.05, all Expenses incurred in
connection with this Agreement and the Merger shall be paid by the party
incurring such Expenses, whether or not the Merger is consummated, except that
Parent and Company each shall pay one-half of all Expenses (other than
attorney's and accountant's fees and expenses) incurred solely for printing,
filing (with the SEC) and mailing the Registration Statement and the Joint Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Joint Proxy Statement and any fees
required to be paid under the HSR Act.
(b) In the event that (i) Company shall terminate this Agreement
pursuant to Section 9.01(i) or Parent shall terminate this Agreement pursuant to
Section 9.01(d) or (ii) this Agreement shall be terminated (x) pursuant to
Section 9.01(b) or (y) pursuant to Section 9.01(e)(i) as a result of the failure
to obtain the requisite approval of the Company stockholders and, in the case of
either (x) or (y), (A) at or prior to such termination, there shall exist or
have been proposed a Competing Transaction with respect to Company and (B)
within nine months after such
67
<PAGE>
termination, Company shall enter into a definitive agreement with respect to any
Competing Transaction or any Competing Transaction involving Company shall be
consummated, then, in the case of (i), promptly after such termination, or in
the case of (ii), concurrently with the consummation of such Competing
Transaction, Company shall pay to Parent an amount in cash equal to the greater
of Four percent (4%) of the "total enterprise value" of the transactions
contemplated by this Agreement or as reflected in the Superior Proposal or the
Competing Transaction, as the case may be, (the "Termination Fee") plus Parent's
Expenses. For purposes of this Section 9.05, the term "total enterprise value"
shall mean the purchase price paid or offered to be paid, as the case may be, in
such transaction, plus the amount of any indebtedness and other liabilities of
the Company assumed or offered to be assumed, as the case may be, in this or
such Competing Transaction, as the case may be.
(c) In the event that Parent shall terminate this Agreement pursuant to
clause (i) of Section 9.01(f), then Company shall promptly reimburse Parent for
Parent's Expenses, and if, within nine months of such termination of this
Agreement, Company shall enter into a definitive agreement with respect to any
Competing Transaction (other than a Competing Transaction solely described in
clause (v) of the definition of such term) or any Competing Transaction (other
than a Competing Transaction solely described in clause (v) of the definition of
such term) involving Company shall be consummated, concurrently with the
consummation of such Competing Transaction (other than a Competing Transaction
solely described in clause (v) of the definition of such term), the Company
shall pay to Parent an amount in cash equal to one-half of the Termination Fee
unless Company did not have Knowledge at the time that this Agreement was
entered into that such representation or warranty was incorrect or incomplete,
in which case Company shall not be obligated to such portion of the Termination
Fee, but shall nonetheless be obligated to pay Parent's Expenses as set forth
above.
(d) In the event that Parent shall terminate this Agreement pursuant to
clause (ii) of Section 9.01(f) (other than in connection with a breach of
Section 6.04 or Section 6.01(y) hereof, which are provided for below), then
Company shall promptly reimburse Parent for Parent's Expenses, and if, within
nine months of such termination of this Agreement, Company shall enter into a
definitive agreement with respect to any Competing Transaction (other than a
Competing Transaction solely described in clause (v) of the definition of such
term) or any Competing Transaction (other than a Competing Transaction solely
described in clause (v) of the definition of such term) involving Company shall
be consummated, concurrently with the consummation of such Competing Transaction
(other than a Competing Transaction solely described in clause (v) of the
definition of such term), the Company shall pay to Parent an amount in cash
equal to half of the Termination Fee.
(e) In the event that Parent shall terminate this Agreement pursuant to
clause (ii) of Section 9.01(f) in connection with a breach of Section 6.04, then
Company shall promptly reimburse Parent for Parent's Expenses, and if, within
nine months of such termination of this Agreement, the Company shall enter into
any agreement with respect to any Competing Transaction or any Competing
Transaction involving Company shall be consummated, concurrently with the
execution of any such agreement, or if there is no agreement, upon the
consummation of such Competing Transaction, the Company shall pay to Parent in
cash the Termination Fee.
68
<PAGE>
(f) In the event that Parent shall terminate this Agreement pursuant to
clause (ii) of Section 9.01(f) in connection with a breach of Section 6.01(y),
then Company shall promptly reimburse Parent for Parent's Expenses.
(g) In the event that Parent shall terminate this Agreement pursuant to
clause (iii) of Section 9.01(f), then Company shall promptly reimburse Parent
for Parent's Expenses.
(h) In the event that Company shall terminate this Agreement pursuant
to Section 9.01(g), then Parent shall promptly reimburse Company for Company's
Expenses.
(i) Parent, Merger Sub and Company agree that the agreements contained
in this Article IX above are reasonable, are an integral part of the transaction
contemplated by this Agreement, and are the sole and exclusive remedies in law
or in equity for a termination or breach of this Agreement or otherwise in
connection with the transactions contemplated by this Agreement. The payments
provided for in this Section 9.05 are intended to establish liquidated damages
in the event of a termination or otherwise and are not intended as a penalty.
Accordingly, if Company or Parent fails to pay to Parent or Company, as the case
may be, any amounts due under Section 9.05(b), Section 9.05(c), or Section
9.05(d), Company or Parent, as the case may be, shall pay interest on such
amounts at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
(j) In the event that the Company does not enter into the Standstill
Agreement within 45 days following the date hereof, the Company shall promptly
reimburse Parent for Parent's Expenses;
(k) In the event that a dispute arises in connection with Section
9.04(c), (d) and/or (e) hereof, such dispute shall be submitted for arbitration
to the American Arbitration Association ("AAA") in New York City in accordance
with the Commercial Rules of the American Arbitration Association, provided;
however, that such arbitrators shall apply the Delaware General Corporation Law
and applicable case law thereunder to the resolution of the dispute. The
decision of the AAA shall be final and binding upon the parties, and shall be
enforceable in any court of competent jurisdiction. Nothing in this provision
shall be construed to prohibit any party hereto from seeking interim equitable
relief in a court of competent jurisdiction pending submission of said dispute
to arbitration hereunder.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations and Warranties
69
<PAGE>
The representations and warranties in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
9.01, as the case may be.
SECTION 10.02 Notices
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by telecopy or facsimile,
by registered or certified mail (postage prepaid, return receipt requested) or
by a nationally recognized courier service to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.02):
(a) if to Company:
Vision Twenty-One, Inc.
7360 Bryan Dairy Road
Largo, FL 33777
Attention: Theodore N. Gillette
Telecopier: (727) 547-4371
with a copy to:
Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Blvd.
Suite 2800
Tampa, FL 33602-0609
Attention: Darrell C. Smith, Esq.
Telecopier: (813) 229-1660
(b) if to Parent or Merger Sub:
OptiCare Health Systems, Inc.
87 Grandview Avenue
Waterbury, CT 06708
Attention: Stephen P. Fisher, General Counsel
Telecopier: (203) 596-2227
with a copy to:
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
Attention: Robert L. Lawrence, Esq.
Telecopier: (212) 245-3009
SECTION 10.03 Severability
70
<PAGE>
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the Merger is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner to the fullest extent permitted by
applicable Law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
SECTION 10.04 Assignment; Binding Effect; Benefit
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of Law or otherwise) without the prior written consent of the other parties
hereto. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, other than Section 7.04, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
SECTION 10.05 Incorporation of Exhibits
The Parent Disclosure Schedule, the Company Disclosure Schedule and all
Exhibits attached hereto and referred to herein are hereby incorporated herein
and made a part of this Agreement for all purposes as if fully set forth herein.
SECTION 10.06 Governing Law
ANY DISPUTE OR CLAIM BASED UPON, ARISING OUT OF OR RESULTING FROM THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ITS CHOICE OF LAWS
PRINCIPLES THEREOF DIRECTING THE APPLICATION OF ANY LAW OTHER THAN THAT OF
DELAWARE. COURTS WITHIN THE STATE OF DELAWARE WILL HAVE JURISDICTION OVER ALL
DISPUTES BETWEEN THE PARTIES HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND THE AGREEMENTS, INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY; PROVIDED,
THAT THE EFFECTIVENESS AND EFFECT OF THE MERGER SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF FLORIDA. THE PARTIES HEREBY CONSENT TO AND AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS. EACH OF THE PARTIES HERETO WAIVES, AND AGREES NOT
TO ASSERT IN ANY SUCH DISPUTE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY CLAIM THAT (I) SUCH PARTY IS NOT PERSONALLY SUBJECT TO THE JURISDICTION
OF SUCH
71
<PAGE>
COURTS, (II) SUCH PARTY AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL
PROCESS ISSUED BY SUCH COURTS OR (III) ANY LITIGATION COMMENCED IN SUCH COURTS
IS BROUGHT IN AN INCONVENIENT FORUM OR IMPROPER VENUE.
SECTION 10.07 Waiver of Jury Trial
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.
SECTION 10.08 Headings; Interpretation
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
SECTION 10.09 Counterparts
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
SECTION 10.10 Entire Agreement
This Agreement (including the Exhibits, the Parent Disclosure Schedule
and the Company Disclosure Schedule), together with all other agreements entered
into simultaneously herewith by the parties hereto and the Confidentiality
Agreements, constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
72
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
73
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
OPTICARE HEALTH SYSTEMS, INC.
By: /s/ Dean Yimoyines
--------------------------------------
Name: Dean Yimoyines
Title: Chairman, President and CEO
VISION TWENTY-ONE, INC.
By: /s/ Bruce Maller
--------------------------------------
Name: Bruce Maller
Title: Board Chairman
OC ACQUISITION CORP.
By: /s/ Dean Yimoyines
--------------------------------------
Name: Dean Yimoyines
Title: President
74
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,921
<SECURITIES> 0
<RECEIVABLES> 11,183
<ALLOWANCES> (626)
<INVENTORY> 3,029
<CURRENT-ASSETS> 21,345
<PP&E> 17,310
<DEPRECIATION> (7,631)
<TOTAL-ASSETS> 66,740
<CURRENT-LIABILITIES> 20,654
<BONDS> 0
0
1
<COMMON> 9
<OTHER-SE> 5,264
<TOTAL-LIABILITY-AND-EQUITY> 66,740
<SALES> 94,633
<TOTAL-REVENUES> 94,633
<CGS> 41,182
<TOTAL-COSTS> 93,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,248
<INCOME-PRETAX> 640
<INCOME-TAX> 289
<INCOME-CONTINUING> 351
<DISCONTINUED> (2,317)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,966)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.54)
</TABLE>
