UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
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 Identification No.)
Incorporation or Organization)
87 GRANDVIEW AVENUE, WATERBURY, CONNECTICUT 06708
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(203) 596-2236
Indicate by check X whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, at May 1, 2002 was 12,783,192 shares.
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2002 (unaudited) and
December 31, 2001 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2002 and 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 19
Item 4. Submissions of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 28
2
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2002 2001
---------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,035 $ 2,568
Accounts receivable, net 8,452 7,823
Inventories 3,166 3,046
Deferred income taxes, current 2,700 6,000
Other current assets 1,035 704
---------------- -----------------
TOTAL CURRENT ASSETS 18,388 20,141
Property and equipment, net 5,824 6,292
Intangible assets, net 7,962 8,078
Goodwill, net 20,577 20,577
Deferred income taxes, non-current 1,800 1,800
Other assets 4,436 2,412
---------------- -----------------
TOTAL ASSETS $ 58,987 $59,300
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,671 $ 4,588
Accrued expenses 7,776 8,920
Current portion of long-term debt 1,744 1,758
Other current liabilities 1,384 1,420
---------------- -----------------
TOTAL CURRENT LIABILITIES 17,575 16,686
---------------- -----------------
Long-term debt, less current portion 22,518 32,608
Other liabilities 1,100 3,024
---------------- -----------------
TOTAL NON-CURRENT LIABILITIES 23,618 35,632
---------------- -----------------
Series B 12.5% voting, mandatorily redeemable , cumulative, convertible
preferred stock, $0.001 par value, 3,500,000
shares authorized, 3,204,959 shares issued and outstanding 4,487 -
---------------- -----------------
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, $.001 par value, 550,000 shares
authorized; no shares outstanding at March 31, 2002; 418,803 shares - 1
outstanding at December 31, 2001.
Common Stock, $0.001 par value; 75,000,000 shares authorized;
12,783,192 and 12,815,092 shares outstanding at March 31, 2002 and 13 13
December 31, 2001, respectively.
Additional paid-in-capital 61,949 60,679
Accumulated deficit (48,655) (53,711)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 13,307 6,982
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 58,987 $ 59,300
================ =================
See notes to condensed consolidated financial statements
3
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------------
2002 2001
-------------- --------------
NET REVENUES:
Managed care $ 7,368 $ 7,703
Product sales 14,147 14,936
Other services 7,231 6,943
-------------- --------------
Total net revenues 28,746 29,582
-------------- --------------
OPERATING EXPENSES:
Medical claims expense 5,753 6,188
Cost of product sales 9,084 9,487
Cost of services 3,576 3,610
Selling, general and administrative 9,285 9,245
Depreciation 645 673
Amortization 116 337
Interest 719 851
-------------- --------------
Total operating expenses 29,178 30,391
-------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM AND INCOME TAXES (432) (809)
Income tax benefit (175) -
-------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM (257) (809)
Extraordinary Item - Gain on early extinguishment of debt,
net of income taxes of $3,475 5,314 -
-------------- --------------
NET INCOME (LOSS) $ 5,057 $ (809)
============== ==============
EARNINGS PER SHARE--BASIC AND DILUTED:
Loss before extraordinary item $ (0.03) $ (0.06)
Extraordinary item $ 0.42 $ -
-------------- --------------
Net income (loss) $ 0.39 $ (0.06)
============== ==============
See notes to condensed consolidated financial statements
4
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
------------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ 5,057 $ (809)
Less: Extraordinary item -gain from early extinguishment of debt
(5,314) --
------------- -------------
Net income (loss) before extraordinary item (257) (809)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 645 673
Amortization 116 337
Deferred taxes (175) --
Changes in operating assets and liabilities
Accounts receivable (629) (620)
Inventory (120) (3)
Other assets (1,736) 578
Accounts payable and accrued expenses 967 1,081
Other liabilities 121 (83)
------------- -------------
Net cash provided by (used in) operating activities (1,068) 1,154
------------- -------------
INVESTING ACTIVITIES:
Purchases of notes receivable (1,350) --
Purchase of equipment (177) (76)
------------- -------------
Net cash used in investing activities (1,527) (76)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 23,278 500
Proceeds from issuance of preferred stock 4,000 --
Principal payments on long-term debt (24,216) (172)
------------- -------------
Net cash provided by financing activities 3,062 328
------------- -------------
Increase (decrease) in cash and cash equivalents 467 1,406
Cash and cash equivalents at beginning of period 2,568 1,445
------------- -------------
Cash and cash equivalents at end of period $ 3,035 $ 2,851
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 125 $ 68
Cash paid (received) for income taxes $ -- $ (110)
See notes to condensed consolidated financial statements
5
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of OptiCare
Health Systems, Inc., a Delaware corporation, and subsidiaries (the "Company")
for the three months ended March 31, 2002 and 2001 have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities Exchange Act of 1934 and are
unaudited. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the consolidated financial statements have been included. The
results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the full year. The
condensed consolidated balance sheet as of December 31, 2001 was derived from
the Company's audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. CAPITAL RESTRUCTURING
On January 25, 2002, the Company closed a series of transactions which
resulted in a major restructuring of its debt, equity and voting capital stock
(the "Capital Restructuring Transactions"). The Capital Restructuring
Transactions included, among other things, the following:
Palisade Concentrated Equity Partnership, L.P., a fund manager and
stockholder of the Company, purchased, for $3,600 in cash, 2,571,429 shares of
the Company's Series B 12.5% Voting Cumulative Convertible Participating
Preferred Stock, par value $.001 per share and Linda Yimoyines, wife of Dr.
Yimoyines, purchased for a $400 cash payment 285,714 shares of Series B
Preferred Stock. Each share of Series B Preferred Stock is immediately
convertible into ten shares of common stock and has the voting power equivalent
to ten shares of common stock; accrues cumulative dividends at an annual rate of
12.5%; must be redeemed in full by the Company on December 31, 2008; and with
respect to dividends, redemption rights, and rights on liquidation, winding up,
corporate reorganization and dissolution, ranks senior to the Company's common
stock.
Bank Austria Creditanstalt Corporate Finance, Inc., which was, until
January 25, 2002, the Company's senior secured lender, forgave approximately
$10,000 of debt and accrued interest due to it and sold the loans and other
obligations of the Company which Bank Austria then held, including security
agreements, pledges of stock by certain of the Company's subsidiaries and
guarantees of loans and other obligations, to CapitalSource Finance LLC, an
asset-based lender specializing in the health care industry.
CapitalSource, as lender, and the Company, as borrower, amended and
restated the terms of the indebtedness acquired by CapitalSource from Bank
Austria by entering into an Amended and Restated Revolving Credit, Term Loan and
Security Agreement, referred to as the Loan and Security Agreement or Credit
Facility.
Palisade made a subordinated loan to the Company of $13,900, and Linda
Yimoyines, wife of Dean J. Yimoyines, M.D., Chairman of the Board, Chief
Executive Officer and President of the Company, made a subordinated loan to the
Company of $100 which loans are evidenced by senior subordinated secured notes.
These notes are subordinate to the Company's indebtedness to its senior lender,
CapitalSource, and are secured by second-priority security interests in
substantially all of the Company's assets (the first-priority security interest
is held by CapitalSource).
In connection with providing the $13,900 subordinated loan to the Company,
Palisade received warrants to purchase up to 17,375,000 shares of common stock.
In connection with providing the $100 subordinated loan to the Company, Ms.
Yimoyines received warrants to purchase up to 125,000 shares of common stock. In
conjunction with the amendment and restatement of the credit facility,
CapitalSource received warrants to purchase 250,000 shares of common stock. The
warrants were issued at an exercise price of $0.14 per share and are exercisable
during a ten-year period expiring January 24, 2012. The estimated fair value of
the warrants of approximately $1,380 was recorded as a debt discount and is
being amortized on the interest method over the term of the related debt.
6
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
The bridge loan from Alexander Enterprise Holdings Corp. was satisfied in
full, as follows: (i) $2,534 in cash was paid to Alexander Enterprise in full
satisfaction of the $2,300 of principal and $234 of accrued interest due to
Alexander Enterprise under the Bridge Loan. Alexander Enterprise relinquished
its security interest in the assets of the company and has no further claims
against us. The cash was provided by the $3,600 purchase by Palisade of Series B
Preferred Stock; (ii) The Company issued 309,170.5 shares of Series B Preferred
Stock to Palisade to satisfy the $400 of principal and $33 of accrued interest
due to Palisade as a participant under the Bridge Loan; and (iii) the Company
issued 38,646.3 shares of Series B Preferred Stock to Ms. Yimoyines to satisfy
the $50 of principal and $4 of accrued interest due to Ms. Yimoyines as a
participant under the bridge loan.
The Company reacquired from Bank Austria, for a cash payment of $1,350,
certain notes and contractual rights originally issued or made to the company in
connection with the Company's transfers of certain medical practice assets to
physicians engaged in such practices.
Without further consideration, Bank Austria surrendered warrants previously
issued to it to purchase 100,000 shares of the Company's common stock;
surrendered to the Company (for retirement) 418,803 shares of Series A
convertible preferred stock of the Company; and surrendered to the Company (for
the Company to retire) 56,900 shares of common stock.
In connection with the Capital Restructuring Transactions, the number of
shares of authorized common stock was increased from 50,000,000 to 75,000,000.
The additional authorized shares provide, among other things, for the
availability of common stock to be issued upon conversion of the Series B
Preferred Stock and exercise of the warrants issued.
The following table sets forth the long-term debt of the Company:
March 31,
2002
------------
Term note payable to CapitalSource in principal amounts of $50 per
quarter. The final principal payment is payable for the outstanding
principal balance and is due and payable on June 1, 2004. Principal and
interest is due and payable monthly in arrears. The interest rate equals
the Prime Rate plus 3.5%. Maturity date is January 22, 2004. The term note
is collateralized by substantially all assets of the Company. $3,000
Revolving credit note to CapitalSource, due January 22, 2005, interest is due and payable
monthly in arrears on the first of the month at an annual rate of Prime Rate plus 1.5% and
is collateralized by substantially all assets of the Company. 5,949
Senior subordinated secured notes payable due January 24, 2012. The interest
rate is 11.50% payable on the last day of each calendar quarter. The notes
are secured by second-priority security interests in substantially all the
company's assets (the first-priority security interest is held by
CapitalSource). The outstanding loan balance at March 31, 2002 includes $295
of paid-in-kind interest. 14,295
Subordinated notes payable due at various dates through 2005. Principal and interest payments
are due monthly or annually. Interest is payable at rates ranging from 5.5% to 9.0%. 2,401
Unamortized discounts (1,383)
------------
Total 24,262
Less current portion 1,744
------------
Long-term portion $22,518
============
7
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
3. EXTRAORDINARY ITEM
On January 25, 2002, the Company recorded a gain on the early
extinguishment of debt of $8,789 before income tax of $3,475 as a result of the
Company's Capital Restructuring Transactions. The $8,789 gain was comprised
principally of approximately $10,000 of debt and interest forgiveness by Bank
Austria, the Company's former senior secured lender, which was partially offset
by $1,200 of unamortized deferred financing fees and debt discount.
4. SEGMENT INFORMATION
The Company currently manages the operations of the business through three
operating segments: (1) Managed Care Services (2) Professional Services and (3)
Other Integrated Services. The managed care segment contracts with insurers,
managed care plans and other third party payors to manage claims payment
administration of eye health benefits for those contracting parties. The
professional services segment provides laser and ambulatory surgery facilities,
develops and sells integrated practice management systems and provides support
services to eye care professionals. The other integrated services segment owns,
operates and/or contracts with fully integrated eye health centers and
professional optometric practices and provides wholesale buying services to eye
care professionals. Management assesses the performance of its segments based on
income before income taxes, interest expense, depreciation and amortization, and
other corporate overhead.
Summarized financial information, by segment, for the three months ended March
31, 2002 and 2001 is as follows:
THREE MONTHS ENDED MARCH 31,
--------------------------------------
2002 2001
------------- -----------------
REVENUES:
Managed care services $ 7,512 $ 7,969
Professional services 1,429 1,609
Other integrated services 23,099 23,577
------------- -----------------
Segment totals 32,040 33,155
Elimination of inter-segment revenues (3,294) (3,573)
------------- -----------------
Total net revenue $28,746 $29,582
============= =================
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND INCOME TAXES:
Managed care services 553 $ 489
Professional services 200 403
Other integrated services 970 794
------------- -----------------
Segment totals 1,723 1,686
Depreciation (645) (673)
Amortization (116) (337)
Interest expense (719) (851)
Corporate (675) (634)
------------- -----------------
Income (loss) before extraordinary item and
income taxes $ (432) $ (809)
============= =================
8
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
5. EARNINGS PER SHARE
The following tables sets forth the computation of basic and diluted
earnings (loss) per share:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
2002 2001
------------ ------------
Income (loss) before extraordinary item $ (257) $ (809)
Preferred stock dividend (103) --
------------ ------------
Income (loss) before extraordinary items available
to common stockholders $ (360) $ (809)
Extraordinary item 5,314 --
------------ ------------
Net income (loss) available to common stockholders $ 4,954 (809)
============ ============
Weighted average common shares outstanding -
basic and diluted 12,733,365 12,759,336
============ ============
Earnings Per Share - basic and diluted:
Income (loss) before extraordinary items available to
common stockholders $ (0.03) $ (0.06)
Extraordinary item 0.42 --
------------ ------------
Net income (loss) per common share $ 0.39 $ (0.06)
============ ============
The following table reflects the potential common shares of the Company at
March 31, 2002 and 2001. These potential shares have been excluded from the
calculation of diluted earnings per share because their effect would be
antidilutive.
2002 2001
------------- -------------
Options 2,470,458 920,458
Warrants 21,176,198 3,501,198
Convertible Preferred Stock 32,049,598 418,803
------------- -------------
55,696,254 4,840,459
============= =============
6. CONTINGENCIES
The Company is both a plaintiff and defendant in lawsuits incidental to its
current and former operations. Such matters are subject to many uncertainties
and outcomes are not predictable with assurance. Consequently, the ultimate
aggregate amount of monetary liability or financial impact with respect to these
matters at March 31, 2002 cannot be ascertained. Management is of the opinion
that, after taking into account the merits of defenses and established reserves,
the ultimate resolution of these matters will not have a material adverse impact
on the Company's consolidated financial position or results of operations.
9
OPTICARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
7. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 2002, the Company adopted Financial Accounting
Standard ("FAS") No. 142, "Goodwill and Other Intangible Assets". The standard
changes the accounting for goodwill and intangible assets with an indefinite
life whereby such assets will no longer be amortized; however the standard does
require evaluation for impairment, and a corresponding writedown, if
appropriate. FAS No. 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company will
complete its transitional impairment test by June 30, 2002.
Comparative information as if goodwill had not been amortized in the first
quarter of 2001 is as follows:
Three Months Ended
March 31,
----------------------
2002 2001
--------- ---------
Net income (loss) as reported $ 5,057 $ (809)
Add back: goodwill amortization -- 238
--------- ---------
Adjusted net income (loss) $ 5,057 $ (571)
========= =========
Earnings per common share - basic and diluted:
Net income (loss) $ 0.39 $ (0.06)
Goodwill amortization -- 0.02
--------- ---------
Adjusted net income (loss) per share $ 0.39 $ (0.04)
========= =========
Intangible assets consist of the following at March 31, 2002 and 2001:
Accumulated
Gross Amortization Net
------------ --------------- ------------
2002:
Administrative Services Agreement $7,123 $(712) $6,411
Other 2,144 (593) 1,551
------------ --------------- ------------
Total $9,267 $(1,305) $7,962
============ =============== ============
2001:
Administrative Services Agreement $7,123 $(427) $6,696
Other 2,412 (673) 1,739
------------ --------------- ------------
Total $9,535 $(1,100) $8,435
============ =============== ============
Amortization of intangibles was $116 and $119 for the three months ended
March 31, 2002 and 2001, respectively. Estimated annual amortization expense is
expected to be $472, $465, $403, $403 and $403 for the years 2002, 2003, 2004,
2005 and 2006, respectively.
Effective January 1, 2002, the Company adopted FAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". FAS No. 144 addresses the
conditions under which an impairment charge should be recorded related to
long-lived assets to be held and used, except for goodwill, and those to be
disposed of by sale or otherwise. There was no effect on the Company's financial
statements as a result of such adoption.
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and management's
discussion and analysis contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001 and Current Report on Form 8-K, as filed
with the Securities and Exchange Commission on April 1, 2002 and February 11,
2002, respectively.
Overview. OptiCare Health Systems, Inc. (the "Company") is an integrated
eye care services company that delivers a range of services and systems for eye
health professionals and consumers, including managed care and professional eye
care services. The Company executes its business through three business
segments: (1) managed care services (2) professional services and (3) other
integrated services. The managed care services segment contracts with insurers,
managed care plans and other third party payors to manage claims payment
administration of eye health benefits. The professional services segment
provides laser and ambulatory surgery facilities; develops and sells integrated
practice management systems, including internet-based software solutions; and
provides support services to eye care professionals throughout the country. The
other integrated services segment owns, operates and/or contracts with
integrated eye health centers and professional optometric practices in
Connecticut and North Carolina, and provides wholesale buying services to eye
care professionals nationwide.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31,
2001
Managed care services revenue. Managed care services revenue decreased to
$7.4 million for the three months ended March 31, 2002 from $7.7 million for the
three months ended March 31, 2001, a decrease of $0.3 million. This decrease was
primarily due to an amendment to the company's contract with ConnectiCare in
April 2001, allowing ConnectiCare to resume administration of the contract. This
decrease was partially offset by negotiated increases in capitation revenue on
existing contracts.
Product sales revenue. Product sales revenue decreased to $14.1 million for
the three months ended March 31, 2002 compared to $14.9 million for the three
months ended March 31, 2001, a decrease of $0.8 million. Of this decrease $0.5
million represented a decrease in buying group revenue resulting from decreases
in purchasing volume. This decrease in volume was primarily due to consolidation
in the eyecare industry whereby smaller independent eyecare businesses are being
replaced by larger eyecare chains that purchase directly from vendors. The
company expects this shift to continue and potentially further reduce the buying
group's market share and revenue; however the company does not expect this trend
to have a material impact on its overall profitability. The remaining $0.3
million decrease represented a decrease in retail optometry sales primarily due
to the closure of certain optometry facilities during 2001 in connection with
the restructuring of operations in Connecticut.
Services revenue. Services revenue increased to $7.2 million for the three
months ended March 31, 2002 from $6.9 million for the three months ended March
31, 2001, an increase of $0.3 million. This increase was comprised of a $0.3
million increase in optometry and ophthalmology revenue primarily due to
increased productivity in 2002, and a $0.4 million increase in revenue
associated with increased sales of software systems. These increases were
partially offset by a $0.4 million decrease in Health Service Organization
revenue. The company's revenue stream from fees collected under its Health
Service Organization agreements has been decreasing due to disputes with certain
physician practices who are parties to these agreements. The company is in
litigation with several of these practices and intends to pursue settlement of
these matters in the future. While a continued decrease in these fees could
negatively impact our cash flows, the company is currently focusing on resolving
the disputes with these practices and believes that the collections will
increase during 2002 due to settlements, resumption of the contractual payment
schedules or a combination of both.
Medical claims expense. Medical claims expense decreased to $5.8 million
for the three months ended March 31, 2002 from $6.2 million for the three months
ended March 31, 2001, a decrease of $0.4 million. The medical claims expense
loss ratio (MLR), representing medical claims expense as a percentage of managed
care revenue, improved to 78.1% in 2002, from 80.3% in 2002. This improvement in
MLR was primarily due to the ConnectiCare contract that is no longer managed by
the company, which had higher MLRs than the average of the company's remaining
contracts, and to negotiated increases in capitation rates on existing managed
care contracts.
11
Cost of product sales. Cost of product sales decreased to $9.1 million for
the three months ended March 31, 2002 from $9.5 million for the three months
ended March 31, 2001, a decrease of $0.4 million. This decrease represented a
reduction in cost of sales related to the buying group program as a result of
the decrease in sales volume.
Income (loss) before income taxes. The company reported a loss before
income taxes of $0.4 million for the three months ended March 31, 2002 compared
to a loss before income taxes of $0.8 million for the three months ended March
31, 2001. The improvement was primarily due to overall increased profitability
in managed care and services as described above.
Income tax expense (benefit). The company reported a $0.2 million income
tax benefit for the three months ended March 31, 2002 related to the operating
loss. The company did not record an income tax benefit on its operating loss for
the three months ended March 31, 2001, primarily due to the uncertainty
surrounding the company's ability to utilize its net operating loss
carryforwards at that time.
Extraordinary item. The company reported a $5.3 million net gain on early
extinguishment of debt for the three months ended March 31, 2002. The gain was
comprised of approximately $10.0 million of forgiveness of principal and
interest by Bank Austria, the company's former senior secured lender, and was
partially offset by the write-off of $1.2 million of related unamortized
deferred financing fees and debt discount, and $3.5 million of income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary sources of liquidity are cash flows generated from
operations and borrowings under its credit facility. The company's principal
uses of liquidity are to provide working capital, meet debt service requirements
and finance capital expenditures. We believe that our cash flow from operations,
borrowings under our credit facility, and operating and capital lease financing
will provide us with sufficient funds to finance our operations for the next 12
months.
As of March 31, 2002, we had approximately $3.0 million of cash and cash
equivalents, $3.0 million of borrowings outstanding under a term loan, and $6.0
million outstanding under our revolving credit agreement. Although we have a $10
million revolving credit facility, the amount available to be borrowed at any
time is based on the value of the collateral underlying the facility and on the
amount outstanding under the facility at such time. As of March 31, 2002, we had
$1.4 million of available credit under our revolving credit facility. Subsequent
to March 31, 2002, we borrowed the remaining amount available under our
revolving credit facility and received an additional $1.0 million temporary
over-advance from our lender, CapitalSource.
For the three months ended March 31, 2002, the company used $1.1 in
operating activities, which included a $0.3 million loss (before an
extraordinary gain on the early extinguishment of debt) and a $1.7 million
increase in other assets, which were partially offset by non-cash charges of
$0.8 million for depreciation and amortization. Net cash provided by operating
activities of $1.2 million for the three months ended March 31, 2001 included an
$0.8 million loss from operations offset by $1.1 million increase in accounts
payable and accrued expenses and $1.0 million of non-cash charges for
depreciation and amortization
Net cash used in investing activities was $1.5 million for the three months
ended March 31, 2002 compared to $0.1 million for the three months ended March
31, 2000. Net cash used in financing activities in 2002 consisted principally of
$1.4 million paid to reacquire certain notes receivable and contractual rights
as part of the Capital Restructuring Transactions.
Net cash provided by financing activities was $3.1 for the three months
ended March 31, 2002 compared to $0.3 million for the three months ended March
31, 2001. Net cash provided by financing activities in 2002 consisted of
approximately $27.3 from the issuance of debt and preferred stock which was
partially offset by approximately $24.2 million of principal payments on
long-term debt, primarily related to the company's capital restructuring in
January 2002. The primary sources of net cash from financing activities for the
three months ended March 31, 2001 was $0.5 million of net proceeds from
additional funds borrowed under the company's amended bridge loan which was
partially offset by approximately $0.2 million of principal payments on
long-term debt.
12
As of March 31, 2001, under an agreement with the Texas Department of
Insurance, the company is required to maintain a restricted investment of
$250,000. The company does not believe the requirements of the Texas Department
of Insurance will have a material impact on the company's liquidity.
As previously disclosed in our filings with the Securities and Exchange
Commission the Company was in default of its obligations to its then senior
lender, Bank Austria Creditanstalt Corporate Finance, Inc. On January 25, 2002
the default was cured as a result of the Capital Restructuring Transactions
described below.
The Capital Restructuring Transactions
On January 25, 2002, the company completed a series of transactions that
resulted in a major reduction in, and restructuring of, the debt described above
as well as our issuance of voting capital stock. The transactions included,
among other things, the following:
1. Palisade Concentrated Equity Partnership, L.P., a fund manager and
stockholder of the company, purchased, for $3.6 million in cash,
2,571,429 shares of the company's Series B 12.5% Voting Cumulative
Convertible Participating Preferred Stock, par value $.001 per share,
referred to as the Series B Preferred Stock, convertible into
25,714,290 shares of common stock. Linda Yimoyines, wife of Dr.
Yimoyines, purchased for a cash payment of $0.4 million, 285,714 shares
of Series B Preferred Stock. The Series B Preferred Stock is described
in more detail below.
2. Bank Austria forgave the portion of our indebtedness to it in excess of
$21.8 million and sold the loans and other obligations of the company
which Bank Austria then held, including security agreements, pledges of
stock by certain of our subsidiaries and guarantees of loans and other
obligations, to CapitalSource Finance LLC, a Delaware limited liability
company.
3. CapitalSource, as lender, and the company, as borrower, amended and
restated the terms of the indebtedness acquired by CapitalSource from
Bank Austria by entering into an Amended and Restated Revolving Credit,
Term Loan and Security Agreement, referred to as the Loan and Security
Agreement or the Credit Facility.
4. Palisade made a subordinated loan to us of $13.9 million, and Linda
Yimoyines, wife of Dean J. Yimoyines, made a subordinated loan to us of
$100,000, which loans are evidenced by senior subordinated secured
notes, the terms of which are described in more detail below.
5. In connection with providing its $13.9 million subordinated loan to the
company, Palisade received warrants entitling Palisade to purchase up
to 17,375,000 shares of common stock at an exercise price of $0.14 per
share (subject to anti-dilution provisions). In connection with her
providing a $100,000 subordinated loan to the company, Ms. Yimoyines
received warrants entitling her to purchase up to 125,000 shares of
common stock at an exercise price of $0.14 per share (subject to
anti-dilution provisions). The warrants issued to Palisade and to Ms.
Yimoyines are exercisable during a ten-year period expiring January 24,
2012.
6. In conjunction with the amendment and restatement of the credit
facility, we issued 10-year warrants to CapitalSource to purchase
250,000 shares of our common stock at an exercise price of $0.14 per
share (subject to anti-dilution provisions).
7. The company applied a portion of the proceeds of the Palisade loan to
pay down the indebtedness under our credit facility now held by
CapitalSource.
8. Our bridge loan from Alexander Enterprise was satisfied in full, as
follows:
a. $2.5 million in cash was paid to Alexander Enterprise in full
satisfaction of the principal and interest owed to Alexander
Enterprise under the bridge loan. Alexander Enterprise relinquished
its security interest in the assets of the company and has no
further claims against us. The cash was provided by the $3.6
million purchase by Palisade of Series B Preferred Stock.
13
b. We satisfied our obligations to Palisade as a participant under the
bridge loan by issuing to Palisade 309,170.5 shares of Series B
Preferred Stock. The amount of such participation, including
accrued but unpaid interest, was $432,839.
c. We satisfied our obligations to Ms. Yimoyines as a participant
under the bridge loan by issuing to Ms. Yimoyines 38,646.3 shares
of Series B Preferred Stock. The amount of such participation,
including accrued but unpaid interest, was $54,104.
9. We reacquired from Bank Austria, for a cash payment of $1.35 million,
certain notes and contractual rights originally issued or made to the
company in connection with the company's transfers of certain medical
practice assets to physicians engaged in such practices.
10. Without further consideration, Bank Austria surrendered to the company
warrants previously issued to it to purchase 100,000 shares of the
company's common stock; surrendered to the company (for retirement)
418,803 shares of Series A convertible preferred stock of the company;
and surrendered to the company (for retirement) 56,900 shares of common
stock.
11. As of the closing of the Capital Restructuring Transactions on January
25, 2002, Palisade held (i) 2,000,000 shares of our common stock which
were previously acquired, (ii) 2,880,599.5 shares of Series B Preferred
Stock, immediately convertible into 28,805,995 shares of common stock,
and (iii) immediately exercisable warrants to purchase up to an
additional 17,775,000 shares of common stock, of which warrants to
purchase 400,000 shares at $0.40 per share were previously acquired.
Thus, 44,864,690 shares of our common stock (including 12,815,092
shares of common stock outstanding as of January 25, 2002 (i.e., prior
to the Capital Restructuring Transactions), and 32,049,598 shares of
common stock issuable upon conversion of the Series B Preferred Stock
held by Palisade and Ms. Yimoyines) would be outstanding in the event
that all of the shares of Series B Preferred Stock are converted.
Without giving effect to any warrants, Palisade may be deemed to
beneficially own 74.0% of our common stock. Giving effect to the
warrants held by Palisade, Palisade may be deemed to beneficially own
81.8% of our common stock.
In connection with the Capital Restructuring Transactions, we agreed that,
so long as Palisade owns more than 50% of the voting power of the company,
Palisade shall have the right to designate a majority of our board of directors.
Pursuant to this provision, three nominees of Palisade were elected to the
company's board of directors effective January 25, 2002.
In connection with the Capital Restructuring Transactions, our stockholders
approved various equity-related proposals by written consent in a solicitation
process which commenced on January 4, 2002. Among those was a proposal to
increase the number of shares of authorized common stock from 50,000,000 to
75,000,000. The additional authorized shares provide the availability of common
stock to be issued upon conversion of the Series B Preferred Stock and exercise
of the warrants which were issued to Palisade, Ms. Yimoyines and CapitalSource.
Subject to the reservation shares of common stock for such conversion and
exercise of warrants, the additional shares will be available for issuance from
time to time by the company at the discretion of the board of directors,
normally without further stockholder action or notification (except as may be
required for a particular transaction by applicable law, requirements of
regulatory agencies or by stock exchange rules) to provide for future equity and
convertible debt financings, acquisitions of property or securities of other
corporations, debt conversions and exchanges, exercise of current and future
options and warrants, and for issuance under our current or future employee
benefit plans, stock dividends and stock splits.
In conjunction with the Capital Restructuring Transactions the company
adopted a by-law amendment which provides that, for so long as Palisade holds
more than 50% of our voting power, the approval of the majority of the company's
independent directors (as that term is defined by the American Stock Exchange)
is required to, among other things, redeem the Series B Preferred Stock; issue
any new class or series of preferred stock to Palisade; issue a security
convertible into preferred stock to Palisade; declare or pay any dividend in
cash, property or securities of the company; or amend the special voting
provision of the company's by-laws.
14
The CapitalSource Credit Facility
The amended and restated credit facility with CapitalSource is comprised of
a $3 million term loan and up to a $10 million revolving credit facility.
The principal terms of the term loan with CapitalSource are:
o The maximum amount of the term loan is 40% of the value of our capital
equipment, as determined by CapitalSource in its absolute discretion;
the current balance drawn down on the term loan is $3 million.
o The interest rate is 3.5 percentage points over the announced prime
rate of Citibank, N.A., but not less than 9%.
o Principal and interest are payable monthly, on the basis of a 15-year
amortization, with payment in full of the balance due on January 25,
2004, two years from the closing of the Loan and Security Agreement.
The principal terms of the revolving credit facility with CapitalSource
are:
o The maximum amount which may be advanced under the revolving credit
facility is the lesser of (i) $10 million or (ii) 80% of eligible
accounts receivable and inventory of the company, plus up to an
additional $750,000. In addition, prior to April 1, 2002, the amount
available was up to 85% of eligible accounts receivable and inventory,
plus an additional $750,000. If the outstanding balance as of April 1,
2002 is in excess of 80% of eligible accounts receivable and inventory,
the excess must be paid down in monthly installments over the four
months ending July 31, 2002.
-- Eligible accounts receivable are accounts receivable not more than
120 days old, subject to certain cross-aging requirements, and
subject to determination by CapitalSource.
-- Eligible inventory is inventory meeting a number of detailed
requirements of CapitalSource and valued at the company's cost less
all discounts.
o The interest rate on the revolving credit facility is 1.5 percentage
points above the announced prime rate of Citibank, N.A., but not less
than 7% per year. Interest is payable monthly in arrears.
o All accounts receivable of the company shall be paid into lockbox
accounts and immediately transferred from such lockbox accounts into a
depository account maintained by CapitalSource on a daily basis.
o The revolving credit facility expires and the outstanding balance of
the revolving credit facility, together with accrued but unpaid
interest, comes due in full on January 25, 2005, three years from the
closing of the amended and restated Loan and Security Agreement.
With respect to both the term loan and the revolving credit facility, we must
also pay a monthly "unused line fee" that equals the excess, if any, of $3,000
over all interest accrued for such month.
The Loan and Security Agreement contains certain restrictions on the conduct of
our business, including, among other things, restrictions on incurring debt,
purchasing or investing in the securities of, or acquiring any other interest
in, all or substantially all of the assets of any person or joint venture,
declaring or paying any cash dividends or making any other payment or
distribution on our capital stock, and creating or suffering liens on our
assets. We are required to maintain certain financial covenants, including a
minimum fixed charge ratio and a minimum net worth.
The company's subsidiaries have guaranteed payments and other obligations
under the credit facility and the company (including certain subsidiaries) has
granted a security interest in substantially all its assets in favor of
CapitalSource. The company also pledged the capital stock of certain of its
subsidiaries to CapitalSource.
15
The occurrence of certain events or conditions described in the Loan and
Security Agreement (subject to grace periods in certain cases) constitutes an
"event of default." If an event of default occurs, the entire outstanding
balance of principal and interest would become immediately due and payable.
Events of default include:
o Our failure to pay any principal or interest when due;
o Our failure to pay any indebtedness to persons other than CapitalSource
in excess of $250,000 (including amounts payable to Palisade under the
note issued to Palisade);
o Our failure to observe any covenant under the credit facility
(including, e.g., the financial covenants);
o Bankruptcy, insolvency or receivership proceedings with respect to the
company;
o Certain changes of control of the company (as defined in the Loan and
Security Agreement);
o Our inability to pay our debts generally as they come due; and
o The occurrence or expectation of any material adverse change with
respect to the company.
The Palisade and Yimoyines Senior Subordinated Secured Loans
Palisade made a subordinated loan to us of $13.9 million, and Ms. Yimoyines
made a subordinated loan to us of $100,000, which loans are evidenced by senior
subordinated secured notes. The senior subordinated secured notes issued to
Palisade and to Ms. Yimoyines rank pari passu with each other. The notes are
subordinate to our indebtedness to CapitalSource and are secured by
second-priority security interests in substantially all the company's assets
(the first-priority security interest is held by CapitalSource).
Principal is due to be paid in 10 years (i.e., on January 25, 2012) and
interest is payable quarterly at the rate of 11.5%. In the first and second
years, the company has the right to defer 100% and 50%, respectively, of
interest to maturity by increasing the principal amount of the note by the
amount of interest so deferred. In the third through tenth years, the holder of
the note has the right to require the company to defer interest to maturity by
increasing the principal amount of the note by the amount of interest so
deferred. As of March 31, 2002, the Company deferred the first payment of
interest on these senior notes to maturity by increasing the principal balance
of these notes by $295,000 (the amount of interest due on the notes at March 31,
2002).
The notes contain certain restrictions on the conduct of our business,
including, among other things, restrictions on incurring debt, becoming a party
to a merger, selling or transferring substantially all of the assets of the
company, declaring or paying any cash dividends or making any other payment or
distribution on the company's capital stock or purchasing or redeeming such
stock, entering into any agreements inconsistent with the company's obligations
under the notes, making any redemption or prepayment of any subordinated debt,
creating or suffering liens on the company's assets, or materially changing the
nature of the company's business.
The occurrence of certain events or conditions described in the Notes
(subject to grace periods in certain cases) constitutes a "default." If a
default occurs, the entire outstanding balance of principal and interest would
become immediately due and payable. Such defaults include, but are not limited
to, failure to pay any principal or interest under the notes when due; failure
to pay any principal or interest when due with respect to the CapitalSource
credit facility; failure to perform or comply with any obligation under the
notes; entry of a final judgment against the company, which, together with all
other final judgments, exceeds in the aggregate $250,000, and which judgment is
not stayed, paid or discharged; and bankruptcy, insolvency or receivership
proceedings with respect to the company.
The Series B Preferred Stock
The Company issued 3,204,959 shares of Series B 12.5% Voting Cumulative
Convertible Participating Preferred Stock. The Preferred Stock accrues
cumulative dividends at an annual rate of 12.5%. As of March 31, 2002, accrued
and unpaid dividends on the Preferred Stock were approximately $103,000.
Each share of Series B Preferred Stock is immediately convertible into ten
shares of common stock and has the voting power equivalent to ten shares of
common stock, subject to certain anti-dilution adjustments. The Preferred Stock
is redeemable at any time by the company on 30 days' notice and must be redeemed
in full by the company on
16
December 31, 2008, at a price equal to the greater of the aggregate adjusted
redemption value of the Series B Preferred Stock plus accrued but unpaid
dividends or the amount the preferred stockholders would be entitled to receive
if the Series B Preferred Stock plus accrued dividends were converted at that
time into common stock and the company were to liquidate and distribute all of
its assets to its common stockholders.
RECENT ACCOUNTING CHANGES
Effective January 1, 2002, the Company adopted Financial Accounting
Standard ("FAS") No. 142, "Goodwill and Other Intangible Assets". The standard
changes the accounting for goodwill and intangible assets with an indefinite
life whereby such assets will no longer be amortized; however the standard does
require evaluation for impairment, and a corresponding writedown, if
appropriate. FAS No. 142 requires a transitional goodwill impairment test six
months from the date of adoption. The Company will complete its transitional
impairment test by June 30, 2002.
Effective January 1, 2002, the Company adopted FAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". FAS No. 144 addresses
accounting and reporting for the impairment or disposal of long-lived assets,
including discontinued operations. There was no effect on the Company's
financial statements as a result of such adoption.
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 effect
on the Company's results of operations if it can not manage these reductions
through increases in revenues or decreases in operating costs. To some degree,
prices for health care are driven by Medicare reimbursement rates, so that the
Company's non-Medicare business is also affected by changes in Medicare
reimbursement rates.
Management believes that inflation has not had a material effect on the
Company's revenues for the three-month periods ended March 31, 2002 and 2001.
FORWARD-LOOKING INFORMATION AND RISK FACTORS
The statements in this Form 10-Q and elsewhere (such as in other filings by
the company with the Securities and Exchange Commission, press releases,
presentations by the company or its management and oral statements) that relate
to matters that are not historical facts are "forward-looking statements" within
the meaning of Section 27A of the Securities Exchange Act of 1934. When used in
this document and elsewhere, words such as "anticipate," "believe," "expect,"
"plan," "intend," "estimate," "project," "will," "could," "may," "predict" and
similar expressions are intended to identify forward-looking statements. Such
forward-looking statements include those relating to:
o Future opportunities;
o The outlook of customers;
o The reception of new services, technologies and pricing methods;
o Existing and potential strategic alliances;
o The likelihood of incremental revenues offsetting expense related to
new initiatives; and
o Expected improvements in the company's financial condition as a result
of the new capital structure.
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. Also,
our business could be materially adversely affected and the trading price of our
common stock could decline if any of the following risks and uncertainties
develop into actual events. Such risk factors, uncertainties and the other
factors include:
o Changes in the regulatory environment applicable to the company's
business, including health-care cost containment efforts by Medicare,
Medicaid and other third-party payers;
17
o Demand and competition for the company's products and services;
o General economic conditions;
o Risks related to the eye care industry, including the cost and
availability of medical malpractice insurance, and adverse long-term
experience with laser and other surgical vision correction;
o Risks related to the managed care and insurance industries, including
risks relating to class action litigation seeking to broaden the scope
of covered services;
o Our ability to successfully integrate and profitably manage our
operations;
o Loss of the services of key management personnel;
o Our ability to execute our growth strategy, without which we may not
become profitable or sustain our profitability;
o Our ability to obtain additional capital, without which our growth
could be limited;
o The fact that we have a history of losses and may incur further losses
in the future;
o The fact that if we default on our debt, our creditors could foreclose
on our assets;
o The possibility that we may not compete effectively with other eye care
services companies which have more resources and experience than us;
o Failure to negotiate profitable capitated fee arrangements;
o The possibility that we may have potential conflicts of interests with
respect to related party transactions which could result in certain of
our officers, directors and key employees having interests that differ
from us and our stockholders;
o Health care regulations or health care reform initiatives, which could
materially adversely affect our business, financial condition and
results of operations;
o The fact that the nature of our business could subject us to potential
malpractice, product liability and other claims;
o The fact that managed care companies face increasing threats of
private-party litigation, including class actions, over the scope of
care that the managed care companies must pay for;
o The fact that the company is dependent upon letters of credit or other
forms of third party security in connection with certain of its
contractual arrangements and, thus, would be adversely affected in the
event it was unable to obtain such credit as needed;
o The fact that certain parties are challenging the validity of and/or
the company's compliance with Health Services Organization contracts
and have ceased or may cease making payments under such contracts,
jeopardizing the company's cash flow; and
o Other risks and uncertainties discussed in this Form 10-Q and detailed
from time to time in the company's periodic earnings releases and
reports filed with the Securities and Exchange Commission.
We undertake no obligation to publicly update or revise forward looking
statements to reflect events or circumstances after the date of this Form 10-Q
or to reflect the occurrence of unanticipated events.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is subject to market risk from exposure to changes in interest
rates based on its financing activities under its credit facility with
CapitalSource, due to its variable interest rate. 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
2002, although there can be no assurances that interest rates will not
significantly change. An
18
increase of 10% in the interest rate payable by the company on its variable rate
debt would increase the quarterly interest expense by approximately $15,000
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 three months ended March 31, 2002.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Described below is information regarding all securities that have been sold
by the Company during the first quarter ended March 31, 2002 that were not
registered under the Securities Act.
On January 4, 2002, the Company granted options to purchase 1,305,000
shares of Common Stock under the Performance Stock Program, at an exercise price
of $0.15 per share.
On January 25, 2002, the Company granted options to purchase 120,000 shares
at an exercise price of $0.31 per share and on March 19, 2002 granted options to
purchase 125,000 shares of common stock at $0.16 per share. These options were
granted under the 2002 Stock Incentive Plan.
On or about January 25, 2002, in connection with the closing of the Capital
Restructuring Transactions, the Company issued warrants to purchase common stock
as follows: (i) in connection with providing the $13.9 million subordinated loan
to the Company, the Company issued to Palisade warrants to purchase up to
17,375,000 shares of common stock; (ii) in connection with providing the $0.1
million subordinated loan to the company, Ms. Yimoyines received warrants to
purchase up to 125,000 shares of common stock; and (iii) in connection with the
amendment and restatement of the credit facility, CapitalSource received
warrants to purchase 250,000 shares of common stock. These warrants were issued
at an exercise price of $0.14 per share and are exercisable during a ten-year
period expiring January 24, 2012. The estimated fair value of the warrants was
recorded as a debt discount.
On or about January 25, 2002 in connection with the closing of the Capital
Restructuring Transactions, Palisade purchased, for $3.6 million in cash,
2,571,429 shares of the company's Series B 12.5% Voting Cumulative Convertible
Participating Preferred Stock, par value $.001 per share, referred to as the
Series B Preferred Stock, convertible into 25,714,290 shares of common stock,
pursuant to the Restructure Agreement. Linda Yimoyines, wife of Dr. Yimoyines,
purchased for a cash payment of $0.4 million, 285,714 shares of Series B
Preferred Stock. The cash was used primarily to payoff the principal and
interest due to Alexander Enterprise under the bridge loan.
On or about January 25, 2002, in connection with the closing of the Capital
Restructuring Transactions, the Company satisfied its obligations to Palisade as
a participant under the bridge loan by issuing to Palisade 309,170.5 shares of
Series B Preferred Stock. The amount of such participation, including accrued
but unpaid interest, was $432,839. The Company also satisfied its obligations to
Ms. Yimoyines as a participant under the bridge loan by issuing to Ms. Yimoyines
38,646.3 shares of Series B Preferred Stock. The amount of such participation,
including accrued but unpaid interest, was $54,104.
On or about January 25, 2002, the company granted warrants to purchase
25,000 shares of Common Stock at $0.14 per share.
On March 19, 2002, the company awarded 25,000 shares of restricted Common
Stock under the 2002 Stock Incentive Plan.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof. No underwriter was engaged in connection with
the foregoing sales of securities. The Company has reason to believe that (i)
all of the foregoing purchasers were familiar with or had access to information
concerning the operations and financial conditions of the Company, (ii) all of
those individuals purchasing securities represented that they acquired the
shares for investment and not with a view to the distribution thereof, and (iii)
other than with respect to the options, that the foregoing purchasers are
accredited investors within the meaning of Regulation D promulgated under the
Securities Act. At the time of issuance, all of the foregoing securities 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.
19
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Commencing January 4, 2002, a number of proposals relating to our capital
restructuring were submitted to the company's stockholders for their written
consent in lieu of a meeting. The consent solicitation terminated on January 18,
2002. Votes were received from stockholders holding a total of 9,140,030 shares
of common stock of the company. All proposals were approved by a majority of our
stockholders.
In the consent solicitation, the proposals listed below were approved by the
following votes:
--------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES VOTED SHARES
PROPOSAL VOTED FOR: AGAINST : ABSTAINED:
--------------------------------------------------------------------------------------------------------------------------
Approval of an amendment to the company's certificate of
incorporation to increase the number of authorized shares of
common stock from 50,000,000 to 75,000,000 shares. 7,488,284 1,406,853 244,893
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Approval of the creation of a new class of convertible preferred
stock, to be designated as the Series B 12.5% voting cumulative
convertible participating preferred stock, as authorized by the
company's board of directors, consisting of up to 3,500,000 shares. 7,405,784 1,406,853 327,393
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Approval of the issuance and sale of approximately 2,571,429
shares of the Series B Preferred Stock to Palisade Concentrated
Equity Partnership, L.P. for a cash payment of $3,500,000. 7,422,784 1,448,805 268,441
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Approval of an investment in the company by Dean J. Yimoyines,
M.D., chairman of the board and chief executive officer of the
company, and/or members of his family, of $500,000 in cash, of
which $400,000 would be invested in the form of a purchase of
285,714 shares of Series B Preferred Stock, and $100,000 would be
invested as a subordinated secured loan to the company due in 10
years; references to Dr. Yimoyines acting as an investor include
such family members and/or trusts. 7,563,236 1,390,853 185,941
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Approval of the issuance to Palisade of approximately 285,714
additional shares of Series B Preferred Stock (plus additional
shares of Series B Preferred Stock for accumulated interest) as
payment in full of principal and interest owed on Palisade's
$400,000 participation in a junior secured bridge loan to the
company by Alexander Enterprise Holdings Corp. 7,422,784 1,389,853 327,393
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Approval of the issuance to Dr. Yimoyines of 35,714 additional
shares of the Series B Preferred Stock (plus additional shares of
Series B Preferred Stock for accumulated interest) as payment in
full of principal and interest owed on Dr. Yimoyines' $50,000
participation in a junior secured bridge loan to the company by
Alexander Enterprise Holdings Corp. 7,404,782 1,407,853 327,395
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Approval of the issuance to Palisade and Dr. Yimoyines of
warrants to purchase an aggregate of up to 17,500,000 shares of
common stock, at an exercise price of $0.14 per share, subject to
adjustment, in connection with their making subordinated secured
loans to the company of $14,000,000 of principal in the aggregate
and agreeing to defer a portion of the interest accruing thereon
to the 10-year maturity date of the loans, which loans are to be
evidenced by subordinated secured notes issued by the company. 7,326,809 1,466,805 346,416
--------------------------------------------------------------------------------------------------------------------------
There were no broker non-votes on any of the above proposals.
20
ITEM 5. OTHER INFORMATION
On April 20, 2001, the American Stock Exchange suspended trading of our
common stock, and the exchange did not permit trading in the stock from that
date until December 12, 2001, principally because we had not filed our Annual
Report on Form 10-K for the year ended December 31, 2000, or our Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30,
2001. We filed all those reports by December 3, 2001, and the exchange
thereafter permitted trading to be conducted.
By letter dated November 19, 2001, the staff of the American Stock Exchange
advised us that it would recommend to the exchange's Committee on Securities the
delisting of our common stock. We appealed such recommendation and a hearing on
the appeal was held before the Committee on Securities on January 29, 2002. The
Committee decided at that time to postpone a determination of whether or not to
delist our common stock pending timely receipt of our Annual Report on Form 10-K
for the year ended December 31, 2001, and review of that report by the Committee
and the staff of the exchange. The Company timely filed its Annual Report on
Form 10-K on April 1, 2002.
On April 12, 2002 the American Stock Exchange Committee on Securities
determined not to recommend to the Amex Adjudicatory Council that an application
be filed with the SEC to strike the company's common stock from listing and
registration on the Amex.
In accordance with pending amendments to the Amex Company Guide, the
company will be subject to a 12-month follow-up period during which the company
will be reviewed to ensure that it does not again fall below any of the Amex
continued listing requirements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q.
a. Exhibits
The following Exhibits are filed as part of this Quarterly Report on
Form 10-Q:
EXHIBIT DESCRIPTION
3.1 Certificate of Incorporation of Registrant, incorporated
herein 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 herein by reference to Exhibit 3.1 to
Registrant's Current Report on Form 8-K filed on August 30,
1999.
3.3 Amended and Restated By-laws of Registrant adopted March
27, 2000, incorporated herein by reference to Exhibit 3.3
to Registrant's Annual Report on Form 10-K filed on March
30, 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 herein by reference to Exhibit 3.2 to
Registrant's Current 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 herein by reference to Exhibit
3.3 to the Registrant's Current Report on Form 8-K filed on
August 30, 1999.
3.6 Warrant Agreement dated as of October 10, 2000, by and
between OptiCare Health Systems, Inc. and Medici Investment
Corp., incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
9/30/00, Exhibit 10.14
21
3.7 Certificate of Amendment of the Certificate of
Incorporation, dated as of January 21, 2002, increasing the
authorized common stock of the Company from 50,000,000 to
75,000,000 shares, incorporated herein by reference to the
Registrant's Current Report on Form 8-K dated January 25,
2002, Exhibit 3.1.
3.8 Certificate of Designation, Rights and Preferences of the
Series B 12.5% Voting Cumulative Convertible Participating
Preferred Stock of the Company, as filed with the Delaware
Secretary of State on January 23, 2002, incorporated herein
by reference to the Registrant's Current Report on Form 8-K
dated January 25, 2002, Exhibit 3.2.
3.9 Amendment No. 1 to the Amended and Restated Bylaws of
OptiCare Health Systems, Inc., incorporated herein by
reference to the Registrant's Current Report on Form 8-K
dated January 25, 2002, Exhibit 3.3.
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,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Annual Report on Form 10-K filed on March 30,
2000. +
4.3 2000 Professional Employee Stock Purchase Plan incorporated
herein by reference to Exhibit 4.3 to Registrant's Annual
Report on Form 10-K filed on March 30, 2000. +
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 herein by reference to Exhibit 10.8 to
the Registration Statement 333-78501.
10.8 Vision care capitation agreement between OptiCare Eye
Health Centers, Inc. and Blue Cross & Blue Shield of
Connecticut, Inc. (and its affiliates) dated October 23,
1999, incorporated herein by reference to Exhibit 10.9 to
the Registration Statement 333-78501.
10.9 Eye care services agreement between OptiCare Eye Health
Centers, Inc. and Anthem Health Plans, Inc. (d/b/a Anthem
Blue Cross and Blue Shield of Connecticut), effective
November 1, 1998, incorporated herein 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, Inc., 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 Registration
Statement 333-78501.+
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
22
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, Inc. 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 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
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, Inc., 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 D. Blair Harrold &
Allan L.M. Barker d/b/a Harrold Barker Investment Co.
("HBIC"), as landlord, and Consolidated Eye Care, Inc.
("CEC"), as tenant, for premises located at 112-B Zebulon
Court, Rocky Mount, North Carolina, incorporated herein by
reference to Exhibit 10.12 to the Registrant's Quarterly
Report on Form 10-Q filed on November 15, 1999.
10.22 Lease dated March 1, 1997 by and between HBIC, as landlord,
and CEC, a wholly-owned subsidiary of PrimeVision Health,
Inc., as tenant, for premises located at 110 Zebulon Court,
Rocky Mount, North Carolina, incorporated herein by
reference to Exhibit 10.13 to the Registrant's Quarterly
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 herein by
reference to Exhibit 10.14 to the Registrant's Quarterly
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, Inc. 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 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.,
renamed OptiCare Eye Health Network, Inc, OptiCare Eye
Health Centers, Inc., 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 herein
23
by reference to Exhibit 10.1 to the Registrant's Current
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, Inc., PrimeVision Health,
Inc., Consolidated Eye Care, Inc., renamed OptiCare Eye
Health Network, 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 herein by reference to Exhibit 10.2
to the Registrant's Current 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 herein by reference
to Exhibit 10.3 to the Registrant's Current 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 herein by reference to Exhibit 10.4 to the
Registrant's Current 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,
Inc., PrimeVision Health, Inc., Consolidated Eye Care,
Inc., renamed OptiCare Eye Health Network, Inc., and each
of the other subsidiaries and affiliates of the Registrant
listed on the signature pages thereto, in favor of the
Agent for the benefit of the Lenders and the LC Issuer,
incorporated herein by reference to Exhibit 10.5 to the
Registrant's Current 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 herein by reference to Exhibit 10.6 to
the Registrant's Current 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.
10.36 Stock Purchase Agreement dated October 1, 1999, among the
Registrant, Stephen Cohen, Robert Airola, Gerald Mandel and
Reginald Westbrook (excluding schedules and other
attachments thereto), incorporated herein by reference to
Exhibit 10.10 to the Registrant's Quarterly Report on Form
10-Q filed on November 15, 1999.
10.38 Lease dated March 1, 1997, between the Registrant as tenant
and Drs. D. Blair Harrold and Allan L.M. Barker as
landlord, covering premises known as 579 Cross Creek Mall,
Fayetteville, N.C., incorporated herein by reference to
Exhibit 10.39 to the Registrant'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 herein 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
herein 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 herein
by reference to Exhibit 10.42 to the Registration Statement
333-93043.
24
10.42 Professional Services and Support Agreement between the
Registrant and Optometric Eye Care Center, P.A.,
incorporated herein by reference to Exhibit 10.43 to the
Registration Statement 333-93043.
10.44 First Amendment to Amended and Restated Loan and Security
Agreement, dated as of June 30, 2000, by and among Bank
Austria Creditanstalt Corporate Finance, Inc., and the
Registrant, incorporated herein by reference to Exhibit
10.9 to the Registrant's Form 10-Q filed on August 14,
2000.
10.45 Second Amendment to Amended and Restated Loan and Security
Agreement, dated as of October 10, 2000, by and among the
Registrant and Bank Austria Creditanstalt Corporate
Finance, Inc., incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, Exhibit 10.11.
10.47 Secured promissory note dated as of October 10, 2000, made
by the Registrant to Alexander Enterprise Holdings Corp.,
incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, Exhibit 10.12
10.48 Security Agreement dated as of October 10, 2000, among the
Registrant, OptiCare Eye Health Centers, Inc., 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 Alexander
Enterprise Holdings Corp., incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000, Exhibit 10.13.
10.49 Amended and Restated Secured Promissory Note issued as of
October 10, 2000, by OptiCare Eye Health Centers, Inc.,
PrimeVision Health, Inc. and Consolidated Eye Care, Inc. to
Alexander Enterprise Holdings Corp. ("Bridge Loan") ,
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000,
Exhibit 10.49.
10.50 Employment Agreement between the Registrant and Jason M.
Harrold, effective July 1, 2000, incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, Exhibit 10.10. +
10.51 Pre-workout Agreement dated February 26, 2001, among Bank
Austria Creditanstalt Corporate Finance, Inc. and OptiCare
Eye Health Network, Inc., OptiCare Eye Health Centers,
Inc., PrimeVision Health Inc., and the Registrant,
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000,
Exhibit 10.51.
10.52 OptiCare Directors' and Officers' Trust Agreement dated
November 7, 2001, between the Registrant and Norman S.
Drubner, Esq., as Trustee, incorporated herein by reference
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000, Exhibit 10.52. +
10.53 Agreement for Consulting Services between Morris Anderson
and Associates, Ltd. and OptiCare Health Systems, Inc.
dated April 16, 2001, incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000, Exhibit 10.53.
10.54 Form of Warrant to purchase 2,250,000 shares of common
stock issued in connection with the Secured Promissory Note
issued as of October 10, 2000, by OptiCare Eye Health
Centers, Inc., PrimeVision Health, Inc. and OptiCare Eye
Health Network, Inc. to Medici Investment Corp.,
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000,
Exhibit 10.54.
10.55 Form of Warrant to purchase 300,000 shares and 2,000,000
shares of common stock issued in connection with the
Amended and Restated Secured Promissory Note issued as of
October 10, 2000, by OptiCare Eye Health Centers, Inc.,
PrimeVision Health,
25
Inc. and OptiCare Eye Health Network, Inc. to Medici
Investment Corp., incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000, Exhibit 10.55.
10.56 Form of Warrant to purchase 50,000 shares of common stock
issued in connection with the Amended and Restated Secured
Promissory Note issued as of October 10, 2000, by OptiCare
Eye Health Centers, Inc., PrimeVision Health,
Inc. and OptiCare Eye Health Network, Inc. to Dean J.
Yimoyines, M.D., incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000, Exhibit 10.56.
10.57 Form of Warrant to purchase 400,000 shares of common stock
issued in connection with the Amended and Restated Secured
Promissory Note issued as of October 10, 2000, by OptiCare
Eye Health Centers, Inc., PrimeVision Health, Inc. and
OptiCare Eye Health Network, Inc. to Palisade Concentrated
Equity Partnership, L.P., incorporated herein by reference
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000, Exhibit 10.57.
10.58 Third Amendment to Amended and Restated Loan and Security
Agreement, dated as of January 5, 2001, by and among Bank
Austria Creditanstalt Corporate Finance, Inc. and OptiCare
Eye Health Network, Inc., OptiCare Eye Health Centers,
Inc., PrimeVision Health Inc., and the Registrant,
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000,
Exhibit 10.58.
10.59 Amendment to Security Agreement dated as of January 5,
2001, among the Registrant, OptiCare Eye Health Centers,
Inc., 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 Alexander Enterprise Holdings Corp., incorporated herein
by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2000, Exhibit 10.59.
10.60 Restructure Agreement dated December 17, 2001, among
Palisade Concentrated Equity Partnership, L.P., Dean J.
Yimoyines, M.D. and the Company, incorporated herein by
reference to the Registrant's Current Report on Form 8-K
dated January 25, 2002, Exhibit 10.1.
10.61 Amendment No. 1, dated January 5, 2002, to the Restructure
Agreement dated December 17, 2001, among Palisade
Concentrated Equity Partnership. L.P., Dean J. Yimoyines,
M.D. and the Company, incorporated herein by reference to
the Registrant's Current Report on Form 8-K dated January
25, 2002, Exhibit 10.2.
10.62 Amendment No. 2, dated January 22, 2002, to the Restructure
Agreement dated December 17, 2001, among Palisade
Concentrated Equity Partnership, L.P. Dean J. Yimoyines,
M.D. and the Company, incorporated herein by reference to
the Registrant's Current Report on Form 8-K dated January
25, 2002, Exhibit 10.3.
10.63 Senior Secured Subordinated Note dated January 25, 2002, in
the principal sum of $13,900,000, issued by the Company to
Palisade Concentrated Equity Partnership, L.P.,
incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated January 25, 2002, Exhibit
10.4.
10.64 Senior Secured Subordinated Note dated January 25, 2002, in
the principal sum of $100,000, issued by the Company to
Linda Yimoyines, incorporated herein by reference to the
Registrant's Current Report on Form 8-K dated January 25,
2002, Exhibit 10.5.
10.65 Subordinated Pledge and Security Agreement dated as of
January 25, 2002, by the Company (including certain of its
subsidiaries) as grantor, and Palisade Concentrated Equity
Partnership, L.P., as secured party and agent for the other
secured party (Linda Yimoyines), securing the senior
secured subordinated notes made by the Company to
26
the secured parties dated January 25, 2002, incorporated
herein by reference to the Registrant's Current Report on
Form 8-K dated January 25, 2002, Exhibit 10.6.
10.66 Form of Warrant dated January 25, 2002, issued to Palisade
Concentrated Equity Partnership, L.P., for the purchase of
up to 17,375,000 shares of common stock., incorporated
herein by reference to the Registrant's Current Report on
Form 8-K dated January 25, 2002, Exhibit 3.4.
10.67 Form of Warrant dated January 25, 2002, issued to Linda
Yimoyines, for the purchase of up to 125,000 shares of
common stock, incorporated herein by reference to the
Registrant's Current Report on Form 8-K dated January 25,
2002, Exhibit 3.5.
10.68 Form of Warrant dated January 25, 2002, issued to
CapitalSource Finance, LLC, for the purchase of up to
250,000 shares of common stock, incorporated herein by
reference to the Registrant's Current Report on Form 8-K
dated January 25, 2002, Exhibit 3.6.
10.69 Registration Rights Agreement dated January 25, 2002,
covering common stock held by Palisade, common stock
issuable on conversion of the Series B Preferred Stock and
exercise of the warrants issued to Palisade, Linda
Yimoyines and CapitalSource Finance, L.L.C., incorporated
herein by reference to the Registrant's Current Report on
Form 8-K dated January 25, 2002, Exhibit 10.7.
10.70 Subordination Agreement dated January 25, 2002, among
Palisade Concentrated Equity Partnership, L.P., Linda
Yimoyines, CapitalSource Finance, L.L.C. and the Company,
incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated January 25, 2002, Exhibit
10.8.
10.71 Amended and Restated Revolving Credit, Term Loan and
Security Agreement dated as of January 25, 2002, between
CapitalSource Finance, L.L.C. and the Company, including
Annex I, Financial Covenants, and Appendix I, Definitions,
incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated January 25, 2002, Exhibit
10.9.
10.72 Reassignment of Rights to Payments under Services
Agreements, Physician Notes and Physician Security
Agreements, between Bank Austria Creditanstalt Corporate
Finance, Inc., and the Company, dated January 25, 2002,
incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated January 25, 2002, Exhibit
10.10.
10.73 Assignment and Assumption Agreement dated January 25, 2002,
between Bank Austria Creditanstalt Corporate Finance, Inc.,
and CapitalSource Finance, L.L.C., incorporated herein by
reference to the Registrant's Current Report on Form 8-K
dated January 25, 2002, Exhibit 10.11.
10.74 OptiCare Directors' & Officers' Tail Policy Trust dated
January 10, 2002, between the Registrant and Norman S.
Drubner, Esq.,as trustee. +
10.75 Employment Agreement dated as of September 1, 2001, between
the Registrant and William Blaskiewicz, incorporated herein
by reference to Exhibit 10.21 of the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 2001.+
10.76 Form of Employment Letter Agreement between the company and
Christopher J. Walls dated February 18, 2002.*+
* Filed herewith.
+ Management or compensatory plan.
27
b. Reports filed on Form 8-K filed in the period covered by this report:
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on February 11, 2002 relating to a series of
transactions which resulted in a change of control and three new
members of the Board of Directors (as described in Item 1 to the Form
8-K) and a major restructuring of its debt, equity and voting capital
stock (as described in Item 5 to the Form 8-K).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned, hereunto duly authorized.
Date: May 15, 2002 OPTICARE HEALTH SYSTEMS, INC.
By: /s/ William A. Blaskiewicz
----------------------------------
William A. Blaskiewicz
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and duly authorized officer)
28