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Delaware | 6794 | 98-0417107 | ||
(State or Other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Stephen M. Banker, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 | Michael L. Fantozzi, Esq. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 (617) 542-6000 |
Proposed Maximum | Proposed Maximum | Amount of | ||||||||||||||||||
Title of Each Class of | Amount | Offering | Aggregate | Registration | ||||||||||||||||
Securities to be Registered | to be Registered | Price per Share | Offering Price | Fee(5) | ||||||||||||||||
Common stock, par value $0.001 | 4,830,041 | (1) | $ | 8.54 | (2) | $ | 41,232,858.13 | $ | 4,411.83 | |||||||||||
Common stock, par value $0.001 | 7,027,956 | (3) | $ | 4.08 | (4) | $ | 28,667,067.26 | $ | 3,067.38 | |||||||||||
TOTAL | 11,857,997 | $ | 69,899,125.39 | $ | 7,479.21 | |||||||||||||||
(1) | Represents shares to be issued and shares issuable upon exercise of options to be issued by Refac in connection with the acquisition of OptiCare Health Systems, Inc., a Delaware corporation (“OptiCare”). |
(2) | Estimated pursuant to Rule 457(f)(1) solely for the purpose of calculating the registration fee and based upon the average of the high and low prices of OptiCare common stock reported by the American Stock Exchange on December 9, 2005. |
(3) | Represents shares to be issued and shares issuable upon exercise of options to be issued by Refac in connection with the acquisition of U.S. Vision Inc., a Delaware corporation (“U.S. Vision”). |
(4) | Estimated pursuant to Rule 457(f)(2) solely for the purpose of calculating the registration fee and based upon the book value per share of U.S. Vision as of October 31, 2005 of $1.689 per share. |
(5) | Computed in accordance with Rule 457(f) and Section 6(b) under the Securities Act by multiplying (A) the proposed maximum aggregate offering price for all securities to be registered by (B) 0.000107. |
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Sincerely, |
Robert L. Tuchman | |
Chief Executive Officer |
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Very truly yours, | |
Dean J. Yimoyines | |
Interim Chief Executive Officer |
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1. To adopt and approve the Agreement and Plan of Merger, dated as of August 22, 2005, as amended, by and among Refac, OptiCare Merger Sub, Inc., a Delaware corporation, OptiCare Health Systems, Inc., a Delaware corporation, and solely with respect to certain sections, each of Dr. Dean J. Yimoyines, Linda Yimoyines and Palisade Concentrated Equity Partnership, L.P., a Delaware limited partnership and to approve the merger contemplated thereby, including the issuance of shares of Refac common stock in the merger. The Agreement and Plan of Merger and the amendment thereto are included as Annexes A and A.1 to the joint proxy statement/ prospectus accompanying this notice. | |
2. To adopt and approve the Agreement and Plan of Merger, dated as of August 22, 2005, as amended, by and among Refac, USV Merger Sub, Inc., a Delaware corporation, U.S. Vision, Inc., a Delaware corporation, and the stockholders of U.S. Vision, Inc. and to approve the merger contemplated thereby, including the issuance of shares of Refac common stock in the merger. The Agreement and Plan of Merger and the amendment thereto are included as Annexes B and B.1 to the joint proxy statement/ prospectus accompanying this notice. | |
3. To approve an amendment and restatement of Refac’s certificate of incorporation to increase the number of authorized shares of common stock from 20,000,000 to 25,000,000. | |
4. To approve an amendment and restatement of Refac’s certificate of incorporation to change the name of the company to Refac Optical Group. | |
5. To approve an amendment of Refac’s certificate of incorporation to de-classify the board of directors. | |
6. To elect three Class 3 directors and three Class 1 directors to Refac’s board of directors. | |
7. To amend the 2003 Stock Incentive Plan to increase the shares reserved for issuance from 500,000 to 1,250,000. | |
8. To transact any other business that may properly be brought before the meeting. |
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By Order of the Board of Directors, |
Raymond A. Cardonne, Jr. | |
Secretary |
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1. To adopt and approve the Agreement and Plan of Merger, dated as of August 22, 2005, as amended, by and among Refac, OptiCare Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Refac, OptiCare Health Systems, Inc., a Delaware corporation, and solely with respect to certain sections, each of Dr. Dean J. Yimoyines, Linda Yimoyines and Palisade Concentrated Equity Partnership, L.P., a Delaware limited partnership. The Agreement and Plan of Merger and the amendment thereto are included as Annexes A and A.1 to the joint proxy statement/ prospectus accompanying this notice. |
By order of the Board of Directors, | |
Dean J. Yimoyines | |
Interim Chief Executive Officer |
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Refac | |
One Bridge Plaza | |
Suite 550 | |
Fort Lee, New Jersey 07024 | |
Attention: Chief Executive Officer | |
Telephone: (201) 585-0600 |
OptiCare Health Systems, Inc. | |
87 Grandview Avenue | |
Waterbury, Connecticut 06708 | |
Attention: Chief Executive Officer | |
Telephone: (203) 596-2236 |
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EX-8.1: OPINION OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. | ||||||||
EX-23.3: CONSENT OF GRANT THORNTON LLP | ||||||||
EX-23.4: CONSENT OF DELOITTE & TOUCHE LLP | ||||||||
EX-23.5: CONSENT OF ERNST & YOUNG LLP | ||||||||
EX-99.1: PROXY CARD OF REFAC | ||||||||
EX-99.2: PROXY CARD OF OPTICARE |
A | OptiCare Merger Agreement | |
A.1 | Amendment No. 1 to OptiCare Merger Agreement | |
B | U.S. Vision Merger Agreement | |
B.1 | Amendment No. 1 to U.S. Vision Merger Agreement | |
C | Form of Proposed Restated Certificate of Incorporation of Refac | |
D.1 | Opinion of Mufson, Howe, Hunter & Company — OptiCare Merger | |
D.2 | Opinion of Mufson, Howe, Hunter & Company — U.S. Vision Merger | |
E | Opinion of The Woodward Group | |
F | Form of Proposed Amendment to Refac 2003 Stock Incentive Plan |
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Q: | Why are the stockholders of Refac and OptiCare receiving this joint proxy statement/ prospectus? | |
A: | Refac and OptiCare have agreed to the acquisition of OptiCare by Refac under the terms of a merger agreement that is described in this joint proxy statement/ prospectus and which we refer to as the OptiCare merger agreement. The OptiCare merger agreement and the amendment to the OptiCare merger agreement are attached to this joint proxy statement/ prospectus as Annexes A and A.1. Refac and U.S. Vision have agreed to the acquisition of U.S. Vision by Refac under the terms of a merger agreement that is described in this joint proxy statement/ prospectus and which we refer to as the U.S. Vision merger agreement. The U.S. Vision merger agreement and the amendment to the U.S. Vision merger agreement are attached to this joint proxy statement/ prospectus as Annexes B and B.1. |
The stockholders of U.S. Vision have already taken the requisite action to approve and adopt the U.S. Vision merger agreement and the transactions contemplated by this merger agreement, including the merger. All of the stockholders of U.S. Vision executed and delivered a written consent constituting the required stockholder approval before entering into the U.S. Vision merger agreement. | ||
This joint proxy statement/ prospectus contains important information about the mergers, the merger agreements, the annual meeting of the stockholders of Refac and the special meeting of the stockholders of OptiCare, which you should read carefully. | ||
The enclosed voting materials allow Refac stockholders to vote their shares without attending Refac’s annual meeting and OptiCare stockholders to vote their shares without attending OptiCare’s special meeting. |
Q: | Who are Palisade Concentrated Equity Partnership, L.P., Palisade Concentrated Holdings, LLC and Palisade Capital Management, L.L.C.? | |
A: | Palisade Concentrated Equity Partnership, L.P. (“Palisade”) is a private equity partnership that is managed by Palisade Capital Management, L.L.C., which we refer to as “PCM.” PCM is an investment advisory firm based in Fort Lee, New Jersey, with over $2 billion in assets under management. Palisade Concentrated Holdings, LLC (“Holdings”) is the general partner of Palisade. | |
Q: | What will happen in the mergers? | |
A: | Pursuant to the terms of the OptiCare merger agreement, OptiCare Merger Sub, Inc., a wholly-owned subsidiary of Refac, which we refer to as “OptiCare Merger Sub,” will merge with and into OptiCare, with OptiCare surviving and continuing as a wholly-owned subsidiary of Refac. Pursuant to the terms of the U.S. Vision merger agreement, USV Merger Sub, Inc., a wholly-owned subsidiary of Refac, which we refer to as “USV Merger Sub,” will merge with and into U.S. Vision, with U.S. Vision surviving and continuing as a wholly-owned subsidiary of Refac. |
In the OptiCare merger, Palisade will receive approximately 0.0403 shares of Refac common stock for each share of OptiCare common stock owned by it immediately prior to the merger and preferred |
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stockholders will receive 0.0403 shares of Refac common stock for each share of OptiCare common stock issued to them upon conversion of OptiCare preferred stock. All other shares of OptiCare common stock outstanding immediately prior to the merger will be converted into the right to receive in the OptiCare merger 0.0472 shares of Refac common stock. | ||
U.S. Vision stockholders will receive 0.4141 shares of Refac common stock for each share of U.S. Vision common stock they own. Refac stockholders will continue to own their existing shares which will not be affected by the mergers. However, because Refac will be issuing new outstanding common stock to OptiCare and U.S. Vision stockholders in the mergers, each stockholder’s Refac shares outstanding immediately prior to the mergers will represent a smaller percentage of the total number of shares of Refac outstanding after the mergers. The mergers will not affect the payment right still held by any Refac stockholders that received this right in the February 2003 transaction with Palisade. | ||
Based on the number of shares of Refac, OptiCare and U.S. Vision common stock and OptiCare preferred stock outstanding on January 18, 2006, the record date for the Refac annual meeting, we estimate that Refac will issue a total of approximately 4.5 million shares of common stock in the OptiCare merger and approximately 6.6 million shares of common stock in the U.S. Vision merger. Palisade currently owns approximately 91% of Refac’s outstanding common stock, and 88% of U.S. Vision’s outstanding common stock. Palisade and Refac beneficially own approximately 84% of OptiCare’s outstanding common stock on a fully diluted basis. Immediately after completion of the mergers, Palisade is expected to own approximately 88% of the outstanding shares of Refac common stock. | ||
Q: | When do Refac, OptiCare and U.S. Vision expect the mergers to be completed? | |
A: | Refac, OptiCare and U.S. Vision expect that the mergers will be completed in March 2006. However, because completion of the mergers is subject to certain conditions, we cannot predict the actual timing. See “Summary of the Joint Proxy Statement/Prospectus — Conditions to Completion of the Mergers” on page 6. | |
Q: | What are the material federal income tax consequences of the mergers? | |
A: | OptiCare’s obligation to complete the OptiCare merger is conditioned on, among other things, OptiCare’s receipt of an opinion from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., dated as of the effective date of the OptiCare merger, substantially to the effect that, on the basis of the facts, representations, covenants and assumptions set forth or referred to in the opinion that is consistent with the state of facts existing at such time, the OptiCare merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The opinion neither binds the Internal Revenue Service (“IRS”) nor precludes the IRS from adopting a contrary position. Although U.S. Vision’s obligation to complete the U.S. Vision merger is not conditioned on the receipt of an opinion of counsel, it is intended that the U.S. Vision merger will be treated for United States federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. | |
Q: | Are Refac, OptiCare or U.S. Vision stockholders entitled to appraisal rights? | |
A: | Under Delaware law, Refac stockholders will not have dissenters’ rights of appraisal in connection with the approval and adoption of the merger agreements and the mergers, including the issuance of Refac common stock in the mergers. OptiCare stockholders will not have dissenters’ rights of appraisal in connection with the OptiCare merger and U.S. Vision stockholders will not have any dissenters’ rights of appraisal in connection with the U.S. Vision merger. | |
Q: | What are Refac’s stockholders voting on at the Refac annual meeting? | |
A: | Refac’s stockholders are voting on the following proposals: |
• to adopt and approve the merger agreement with OptiCare, as amended, and the OptiCare merger, including the issuance of Refac common stock in the merger; |
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• to adopt and approve the merger agreement with U.S. Vision, as amended, and the U.S. Vision merger, including the issuance of Refac common stock in the merger; | ||
• to approve an amendment and restatement of Refac’s certificate of incorporation, which we refer to in this joint proxy statement/ prospectus as the “Refac charter,” to increase the number of authorized shares of Refac common stock from 20,000,000 to 25,000,000, which is not a condition to the effectiveness of the mergers; | ||
• to approve an amendment and restatement of Refac’s charter to change the company’s name to Refac Optical Group, which is not a condition to the effectiveness of the mergers; | ||
• to approve an amendment and restatement of Refac’s charter to de-classify the board of directors, which is not a condition to the effectiveness of the mergers; | ||
• to elect three Class 3 directors and three Class one directors to the Refac board of directors, which is not a condition to the effectiveness of the mergers; and | ||
• to amend Refac’s 2003 Stock Incentive Plan to increase the number of shares reserved for issuance from 500,000 to 1,250,000, which is not a condition to the effectiveness of the mergers. | ||
Refac’s stockholders are voting on each proposal separately. A vote on one proposal has no bearing on the other proposals or any other matter that may come before the Refac annual meeting. |
Q: | What are OptiCare’s stockholders voting on at the OptiCare special meeting? | |
A: | OptiCare’s stockholders are voting on the following proposal: |
• to adopt and approve the merger agreement with Refac, as amended. Such adoption will also constitute approval of the OptiCare merger. | ||
Q: | Will U.S. Vision stockholders have a meeting to vote on the U.S. Vision merger? | |
A: | No. Delaware law allows stockholders to act by written consent instead of holding a meeting. Holders of all of the outstanding shares of U.S. Vision common stock have already executed and delivered a written consent voting those shares in favor of the U.S. Vision merger. Therefore, no vote is required on the part of U.S. Vision stockholders. We are not asking for a proxy from U.S. Vision stockholders, and U.S. Vision stockholders are requested not to send us a proxy. | |
Q: | What vote of Refac stockholders is required to approve the proposals at the Refac annual meeting? | |
A: | Stockholder adoption and approval of the merger agreements and the mergers, including the issuance of shares of Refac common stock in the mergers, requires the affirmative vote of the holders of at least 55% of the outstanding shares of Refac common stock entitled to vote at the annual meeting. |
Each of the proposals to amend and restate Refac’s charter to increase the number of authorized shares from 20,000,000 to 25,000,000, change Refac’s name to Refac Optical Group and de-classify the board of directors requires the affirmative vote of the holders of a majority of the outstanding shares of Refac common stock entitled to vote at the annual meeting. These proposals are collectively referred to in this joint proxy statement/ prospectus as the “charter amendment proposals.” | ||
A plurality of the votes of the shares of Refac common stock present, in person or by proxy, at the Refac annual meeting is necessary to elect each of the nominees to the Refac board of directors. | ||
The approval of the amendment to the 2003 Stock Incentive Plan, which we refer to as the “stock plan amendment,” requires the affirmative vote of the holders of at least 55% of the outstanding shares of Refac common stock entitled to vote at the annual meeting. |
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Palisade owns approximately 91% of the outstanding shares of Refac and has indicated that it intends to vote in favor of all the proposals presented at the meeting. As a result, we expect that all the proposals presented at the meeting will be adopted and approved. | ||
Q: | What vote of OptiCare stockholders is required to approve the proposals at the OptiCare special meeting? | |
A: | In accordance with the requirements of Delaware law and OptiCare’s certificate of incorporation, which we refer to in this joint proxy statement/ prospectus as the “OptiCare charter,” the affirmative vote of the holders of a majority of the outstanding shares of OptiCare common stock and preferred stock entitled to vote, voting together as a single class, in person or by proxy, is required to approve and adopt the OptiCare merger agreement, as amended, and the OptiCare merger. | |
Q: | How does the board of directors of Refac recommend that Refac Stockholders vote? | |
A: | The Refac board of directors unanimously recommends that Refac stockholders vote“FOR” the proposals to adopt and approve the merger agreements with each of OptiCare and U.S. Vision, as amended, and the mergers, including the issuance of shares of Refac common stock in the mergers. The Refac board of directors has determined that the merger agreements, as amended, and the mergers, including the issuance of shares of Refac common stock to OptiCare and U.S. Vision stockholders in the mergers, are advisable to, fair to and in the best interests of Refac and its stockholders, and has declared the issuance of shares of Refac common stock in the mergers to be advisable to its stockholders. The Refac board of directors unanimously approved each of the proposed charter amendment proposals and the stock plan amendment, and unanimously recommends that Refac stockholders vote“FOR” each of the charter amendment proposals. | |
The Refac board of directors unanimously recommends that Refac stockholders vote“FOR” the election of each of the nominees to the Refac board of directors. | ||
For a more complete description of the recommendations of the Refac board of directors, see “The Mergers — Recommendation of Refac’s Board; Refac’s Reasons for the Mergers”. |
Q: | How does the board of directors of OptiCare recommend that OptiCare stockholders vote? | |
A: | The OptiCare board of directors unanimously recommends that OptiCare stockholders vote“FOR” the proposal to adopt and approve the merger agreement with Refac, as amended. Such adoption will also constitute approval of the OptiCare merger. The OptiCare board of directors has determined that the OptiCare merger agreement, as amended, and the merger is advisable to, fair to and in the best interests of OptiCare and its stockholders. The OptiCare board of directors unanimously recommends that OptiCare stockholders vote“FOR” the proposal. | |
For a more complete description of the recommendations of the OptiCare board of directors, see “The Mergers — Recommendation of OptiCare’s Board; Opticare’s Reasons for the Mergers.” | ||
Q: | When and where will the annual meeting of Refac stockholders and the special meeting of OptiCare stockholders be held? | |
A: | The Refac annual meeting will take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 on Monday, March 6, 2006, beginning at 11:00 am Eastern time. The OptiCare special meeting will take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 on Monday, March 6, 2006, beginning at 10:00 am Eastern time. | |
Q: | Who can attend and vote at the Refac annual meeting and the OptiCare special meeting? | |
A: | All Refac stockholders of record as of close of business on January 18, 2006, the record date for the Refac annual meeting, are entitled to receive notice and to vote at the Refac annual meeting. All OptiCare stockholders of record as of close of business on January 18, 2006, the record date for the OptiCare special meeting, are entitled to receive notice and to vote at the OptiCare special meeting. | |
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Q: | What should Refac and OptiCare stockholders do now in order to vote on the proposals being considered at the Refac annual meeting and OptiCare special meeting? | |
A: | Stockholders of record of Refac as of the record date for the Refac annual meeting may now vote by proxy by completing, signing, dating and returning the enclosed Refac proxy card in the accompanyingpre-addressed postage paid envelope. If you hold Refac shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you must provide the record holder of your shares with instructions on how to vote your shares. | |
Stockholders of record of OptiCare as of the record date for the OptiCare special meeting, may now vote by proxy by completing, signing, dating and returning the enclosed OptiCare proxy card in the accompanying pre-addressed postage paid envelope. If you hold OptiCare shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you must provide the record holder of your shares with instructions on how to vote your shares. |
Q: | Can Refac stockholders vote at Refac’s annual meeting? | |
A: | Yes. Refac stockholders may also vote in person by attending Refac’s annual meeting of stockholders. If you plan to attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name,” and you wish to vote at Refac’s annual meeting, you must bring a proxy from the record holder of the shares authorizing you to vote at the annual meeting. | |
Q: | Can OptiCare stockholders vote at OptiCare’s special meeting? | |
A: | Yes. OptiCare stockholders may also vote in person by attending OptiCare’s special meeting of stockholders. If you plan to attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name,” and you wish to vote at OptiCare’s special meeting, you must bring a proxy from the record holder of the shares authorizing you to vote at the special meeting. | |
Q: | Can Refac or OptiCare stockholders change their vote after delivering a proxy? | |
A: | Yes. Refac’s and OptiCare’s holders of record can change their vote at any time before their proxy is voted at the Refac annual meeting and the OptiCare special meeting, respectively, by: |
• delivering a signed written notice of revocation to the Secretary of the respective company; | ||
• signing and delivering a new, later dated proxy to the respective company; or | ||
• attending the Refac annual meeting or OptiCare special meeting, respectively, and voting in person, although attendance alone will not revoke the proxy. | ||
If your shares are held in a “street name” account, you must contact your broker, bank or other nominee to change your vote. |
Q: | Should OptiCare and U.S. Vision stockholders send their stock certificates now? | |
A: | No. After the OptiCare merger is completed, OptiCare stockholders will receive written instructions from the exchange agent on how to exchange their OptiCare stock certificates for the merger consideration. If you are an OptiCare stockholder, please do not send in your OptiCare stock certificate before you receive the instructions from the exchange agent. |
U.S. Vision stockholders will exchange their U.S. Vision stock certificates for the merger consideration at the closing of the U.S. Vision merger. If you are a U.S. Vision stockholder, please do not send in your stock certificate. |
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Q: | What should Refac or OptiCare stockholders do if they receive more than one set of voting materials? | |
A: | Refac or OptiCare stockholders may receive more than one set of voting materials for the Refac annual meeting or OptiCare special meeting, as the case may be, including multiple copies of this joint proxy statement/ prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your Refac or OptiCare shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your Refac or OptiCare shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive. | |
Q: | Who can help answer my questions? | |
A: | If you have any questions about the mergers or how to submit your proxy, or if you need additional copies of this joint proxy statement/ prospectus, the enclosed proxy card, voting instructions or the letter of transmittal, you should contact: |
if you are a Refac stockholder: | ||
Refac One Bridge Plaza Fort Lee, New Jersey 07024 Attention: Chief Executive Officer Telephone: (201) 585-0600 | ||
if you are an OptiCare stockholder: | ||
OptiCare Health Systems, Inc. 87 Grandview Avenue Waterbury, Connecticut 06708 Attention: Chief Executive Officer Telephone: (203) 596-2236 |
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Refac(see page 105) |
Refac | |
One Bridge Plaza | |
Fort Lee, New Jersey 07024 | |
Telephone: (201) 585-0600 |
OptiCare Health Systems, Inc.(see page 115) |
OptiCare Health Systems, Inc. | |
87 Grandview Avenue | |
Waterbury, Connecticut 06708 | |
Telephone: (860) 596-2236 |
U.S. Vision, Inc.(see page 149) |
U.S. Vision, Inc. | |
1 Harmon Drive | |
Glen Oaks Industrial Park | |
Glendora, New Jersey 08029 | |
Telephone: (856) 228-1000 |
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OptiCare Merger Sub, Inc. |
OptiCare Merger Sub, Inc. | |
c/o Refac | |
One Bridge Plaza | |
Fort Lee, New Jersey 07024 | |
Telephone: (201) 585-0600 |
USV Merger Sub, Inc. |
USV Merger Sub, Inc. | |
c/o Refac | |
One Bridge Plaza | |
Fort Lee, New Jersey 07024 | |
Telephone: (201) 585-0600 |
The OptiCare Merger(see page 55) |
The U.S. Vision Merger(see page 65) |
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Refac(see page 31) |
OptiCare(see page 41) |
Refac(see page 76) |
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OptiCare(see page 99) |
U.S. Vision |
Refac(see page 33) |
OptiCare(see page 43) |
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The OptiCare Merger(see page 57) |
• | the approval and adoption by the Refac stockholders of the OptiCare merger agreement, as amended, and the merger, including the issuance of shares in the merger; | |
• | the absence of any legal restraints or prohibitions preventing completion of the OptiCare merger; | |
• | the representations and warranties of the other party included in the OptiCare merger agreement being true and correct, except to the extent that breaches of such representations and warranties would not have a material adverse effect on the representing party; | |
• | performance of the obligations of the other parties included in the OptiCare merger agreement in all material respects; and | |
• | the completion of the U.S. Vision merger prior to or simultaneously with the OptiCare merger. |
• | absence of any events or developments since the date of the OptiCare merger agreement that would reasonably be expected to have a material adverse effect on OptiCare; | |
• | the conversion of all outstanding preferred stock of OptiCare by OptiCare preferred stockholders into shares of OptiCare common stock prior to the effective time of the OptiCare merger; and | |
• | OptiCare Eye Health Centers, Inc., a wholly-owned subsidiary of OptiCare, and OptiCare P.C., of which Dr. Dean J. Yimoyines, OptiCare’s Chairman and Interim Chief Executive Officer, is the sole stockholder, executing an amended and restated Professional Services and Support Agreement. |
The U.S. Vision Merger(see page 67) |
• | the approval and adoption by the Refac stockholders of the U.S. Vision merger agreement, as amended, and the merger, including the issuance of shares in the merger; | |
• | the absence of any legal restraints or prohibitions preventing completion of the U.S. Vision merger; | |
• | the representations and warranties of the other parties included in the U.S. Vision merger agreement being true and correct, except to the extent that breaches of Refac’s or U.S. Vision’s representations and warranties would not have a material adverse effect on the representing party; | |
• | performance of the obligations of the other parties included in the U.S. Vision merger agreement in all material respects; and | |
• | the absence of any events or developments since the date of the U.S. Vision merger agreement that would reasonably be expected to have a material adverse effect on U.S. Vision or Refac. |
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The OptiCare Merger(see page 64) |
• | the OptiCare merger is not completed by or on April 30, 2006; | |
• | any governmental entity prohibits the OptiCare merger; or | |
• | the other party breaches its representations or warranties or fails to perform its covenants in the OptiCare merger agreement, which results in a failure of certain of the conditions to the completion of the OptiCare merger being satisfied. |
The U.S. Vision Merger(see page 73) |
• | the U.S. Vision merger is not completed by or on April 30, 2006; | |
• | any governmental entity prohibits the U.S. Vision merger; or | |
• | the other party breaches its representations or warranties or fails to perform its covenants in the U.S. Vision merger agreement, which results in a failure of certain of the conditions to the completion of the U.S. Vision merger being satisfied. |
The OptiCare Merger(see pages 52 and 65) |
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The U.S. Vision Merger(see page 52 and 75) |
• | elect six directors to the Refac board of directors; | |
• | approve an amendment and restatement of Refac’s charter to increase the number of authorized shares of common stock from 20,000,000 to 25,000,000; | |
• | approve an amendment and restatement of Refac’s charter to change the name of the company to Refac Optical Group; | |
• | approve an amendment of Refac’s charter to de-classify the board of directors; | |
• | amend the 2003 Stock Incentive Plan to increase the number of authorized shares from 500,000 to 1,250,000; and | |
• | transact any other business as may properly come before the Refac annual meeting or any adjournments or postponements of the annual meeting. |
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Historical | Proforma | ||||||||||||||||||||||||
U.S. Vision | OptiCare | ||||||||||||||||||||||||
Refac | U.S. Vision | OptiCare | Combined | Equivalent | Equivalent | ||||||||||||||||||||
Year ended December 31, 2004 for Refac and OptiCare and January 31, 2005 for U.S. Vision | |||||||||||||||||||||||||
Income (loss) per share from continuing operations: | |||||||||||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.07 | $ | (0.02 | ) | $ | (0.17 | ) | $ | (0.07 | ) | $ | (0.01 | ) | ||||||||
Diluted | $ | (0.03 | ) | $ | 0.07 | $ | (0.02 | ) | $ | (0.17 | ) | $ | (0.07 | ) | $ | (0.01 | ) | ||||||||
Book value per share | $ | 4.46 | $ | 1.58 | $ | 0.11 | $ | 4.29 | $ | 1.78 | $ | 0.18 | |||||||||||||
Cash dividends | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Nine months ended September 30, 2005 for Refac and OptiCare and October 31, 2005 for U.S. Vision | |||||||||||||||||||||||||
Income (loss) per share from continuing operations: | |||||||||||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.11 | $ | 0.01 | $ | 0.16 | $ | 0.07 | $ | 0.01 | ||||||||||||
Diluted | $ | (0.03 | ) | $ | 0.11 | $ | 0.00 | $ | 0.16 | $ | 0.07 | $ | 0.01 | ||||||||||||
Book value per share | $ | 4.47 | $ | 1.69 | $ | 0.18 | $ | 4.98 | $ | 2.06 | $ | 0.20 | |||||||||||||
Cash dividends | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
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High | Low | ||||||||
Fiscal Year Ended December 31, 2003: | |||||||||
February 28, 2003 through March 31, 2003 | $ | 4.11 | $ | 3.46 | |||||
Second Quarter ended June 30, 2003 | 5.15 | 4.31 | |||||||
Third Quarter ended September 30, 2003 | 5.06 | 4.75 | |||||||
Fourth Quarter ended December 31, 2003 | 5.25 | 4.76 | |||||||
Fiscal Year Ended December 31, 2004: | |||||||||
First Quarter ended March 31, 2004 | $ | 5.06 | $ | 4.72 | |||||
Second Quarter ended June 30, 2004 | 4.80 | 4.68 | |||||||
Third Quarter ended September 30, 2004 | 4.83 | 4.65 | |||||||
Fourth Quarter ended December 31, 2004 | 4.66 | 4.11 | |||||||
Fiscal Year Ended December 31, 2005: | |||||||||
First Quarter ended March 31, 2005 | $ | 4.25 | $ | 4.10 | |||||
Second Quarter ended June 30, 2005 | 6.10 | 4.10 | |||||||
Third Quarter ended September 30, 2005 | 8.00 | 5.86 | |||||||
Fourth Quarter ended December 31, 2005 | 8.50 | 7.75 |
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High | Low | ||||||||
Fiscal Year Ended December 31, 2003: | |||||||||
First Quarter ended March 31, 2003 | $ | 0.95 | $ | 0.29 | |||||
Second Quarter ended June 30, 2003 | 0.90 | 0.52 | |||||||
Third Quarter ended September 30, 2003 | 0.74 | 0.53 | |||||||
Fourth Quarter ended December 31, 2003 | 0.99 | 0.55 | |||||||
Fiscal Year Ended December 31, 2004: | |||||||||
First Quarter ended March 31, 2004 | $ | 0.85 | $ | 0.60 | |||||
Second Quarter ended June 30, 2004 | 0.65 | 0.36 | |||||||
Third Quarter ended September 30, 2004 | 0.35 | 0.20 | |||||||
Fourth Quarter ended December 31, 2004 | 0.36 | 0.21 | |||||||
Fiscal Year Ended December 31, 2005: | |||||||||
First Quarter ended March 31, 2005 | $ | 0.44 | $ | 0.26 | |||||
Second Quarter ended June 30, 2005 | 0.40 | 0.26 | |||||||
Third Quarter ended September 30, 2005 | 0.35 | 0.21 | |||||||
Fourth Quarter ended December 30, 2005 | 0.38 | 0.30 |
OptiCare Equivalent | ||||||||||||||||
per Share for | OptiCare Equivalent | |||||||||||||||
Palisade and the | per Share for other | |||||||||||||||
Refac | OptiCare | Other Preferred | Shares of OptiCare | |||||||||||||
Dates | Common Stock | Common Stock | Stockholder | Common Stock | ||||||||||||
August 22, 2005 | $ | 6.31 | $ | 0.27 | $ | 0.25 | $ | 0.30 | ||||||||
February 2, 2006 | 8.25 | $ | 0.33 | $ | 0.33 | $ | 0.39 |
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Dividend Policy |
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Nine Months | Nine Months | |||||||||||||||||||||||||||
Ended | Ended | Year Ended December 31, | ||||||||||||||||||||||||||
Sept. 30, | Sept. 30, | |||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenues | $ | 2,354 | $ | 1,413 | $ | 1,779 | $ | 1,804 | $ | 6,415 | $ | 4,840 | $ | 9,004 | ||||||||||||||
Net income (loss) from continuing operations | $ | (186 | ) | $ | (87 | ) | $ | (239 | ) | $ | (1,534 | ) | $ | 2,511 | $ | 2,764 | $ | 4,571 | ||||||||||
Income (loss) from discontinued operations — net of taxes | — | $ | 10 | $ | 14 | $ | 38 | $ | (1,697 | ) | $ | (1,680 | ) | $ | 1,642 | |||||||||||||
Loss from cumulative effect of change in accounting principle — net of taxes | — | — | — | — | $ | (2,083 | ) | — | ||||||||||||||||||||
Net income (loss) | $ | (186 | ) | $ | (77 | ) | $ | (225 | ) | $ | (1,496 | ) | $ | (1,269 | ) | $ | 1,084 | $ | 2,929 | |||||||||
Income (loss) per common share from continuing operations — basic | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.27 | ) | $ | 0.66 | $ | 0.73 | $ | 1.20 | ||||||||||
Income (loss) per common share from discontinued operations — basic | — | $ | (0.00 | ) | — | $ | 0.01 | $ | (0.44 | ) | $ | (0.44 | ) | $ | (0.43 | ) | ||||||||||||
Loss per common share from cumulative effect of change in accounting principle — basic | — | — | — | — | $ | (0.55 | ) | — | — | |||||||||||||||||||
Income (loss) per common share on net income — basic | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.33 | ) | $ | 0.29 | $ | 0.77 | |||||||||
Income (loss) per common share from continuing operations — diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.27 | ) | $ | 0.66 | $ | 0.73 | $ | 1.20 | ||||||||||
Income (loss) per common share from discontinued operations — diluted | — | $ | (0.00 | ) | — | $ | 0.01 | $ | (0.44 | ) | $ | (0.44 | ) | $ | (0.43 | ) | ||||||||||||
Loss per common share from cumulative effect of change in accounting principle — diluted | — | — | — | — | $ | (0.55 | ) | — | — | |||||||||||||||||||
Income (loss) per common share on net income — diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.33 | ) | $ | 0.29 | $ | 0.77 | |||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Total assets | $ | 38,208 | $ | 38,461 | $ | 38,768 | $ | 39,023 | $ | 24,292 | $ | 24,387 | $ | 24,903 | ||||||||||||||
Dividends | — | — | — | — | — | — | — | |||||||||||||||||||||
Stockholders’ Equity | $ | 31,446 | $ | 32,001 | $ | 31,197 | $ | 31,898 | $ | 21,340 | $ | 22,592 | $ | 22,754 |
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Nine Months | Nine Months | ||||||||||||||||||||||||||||
Ended | Ended | Year Ended December 31, | |||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||||
Total net revenues | $ | 44,212 | $ | 44,524 | $ | 58,903 | $ | 61,099 | $ | 60,855 | $ | 59,475 | $ | 68,409 | |||||||||||||||
Income (loss) from continuing operations(1)(2) | $ | 998 | $ | (248 | ) | $ | 38 | $ | (7,053 | ) | $ | 4,842 | $ | 2,969 | $ | (14,874 | ) | ||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||
Basic | 30,650 | 30,580 | 30,598 | 30,067 | 12,552 | 12,795 | 12,354 | ||||||||||||||||||||||
Diluted | 108,540 | 30,580 | 30,598 | 30,067 | 51,172 | 13,214 | 12,354 | ||||||||||||||||||||||
Income (loss) from continuing operations per share available to common stockholders: | |||||||||||||||||||||||||||||
Basic | $ | 0.01 | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.25 | ) | $ | 0.35 | $ | 0.23 | $ | (1.20 | ) | |||||||||||
Diluted | $ | 0.00 | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.25 | ) | $ | 0.09 | $ | 0.22 | $ | (1.20 | ) | |||||||||||
Balance Sheet Data: | |||||||||||||||||||||||||||||
Net assets of discontinued operations | — | $ | 5,272 | $ | 3,361 | $ | 9,493 | $ | 4,287 | $ | 13,892 | $ | 14,813 | ||||||||||||||||
Total current assets | 6,822 | 17,273 | 14,818 | 17,549 | 13,279 | 20,583 | 14,913 | ||||||||||||||||||||||
Goodwill and other intangibles, net | 17,873 | 17,687 | 17,731 | 17,744 | 17,859 | 17,978 | 18,962 | ||||||||||||||||||||||
Total assets | 30,164 | 43,549 | 39,814 | 45,855 | 45,105 | 59,742 | 55,513 | ||||||||||||||||||||||
Total current liabilities | 10,528 | 26,829 | 16,386 | 23,628 | 10,558 | 17,139 | 49,454 | ||||||||||||||||||||||
Total debt (including current portion)(3) | 3,417 | 10,135 | 10,356 | 12,593 | 19,321 | 34,286 | 34,312 | ||||||||||||||||||||||
Redeemable preferred stock | 6,929 | (4) | 6,163 | 6,344 | 5,635 | 5,018 | — | — | |||||||||||||||||||||
Total stockholders’ equity(5) | $ | 11,342 | $ | 9,966 | $ | 5,565 | $ | 14,412 | $ | 10,652 | $ | 6,981 | $ | 3,877 |
(1) | Includes the effect of goodwill amortization of $943,000 in both 2001 and 2000. The amortization of goodwill was discontinued in 2002 pursuant to Statement of Financial Accounting Standards (SFAS) No. 142. Excludes preferred stock dividends of $585,000 and $528,000 for the nine months ended September 30, 2005 and 2004, respectively, and $709,000, $618,000 and $531,000 in 2004, 2003 and 2002, respectively, with respect to OptiCare’s Series B Preferred Stock. |
(2) | As a result of its adoption of SFAS No. 145, OptiCare reclassified its previously reported gain from extinguishment of debt of approximately $8.8 million and related income tax expense of approximately $3.5 million in 2002 from an extraordinary item to continuing operations. |
(3) | Balance at September 30, 2005 includes a subordinated loan from Refac of $1 million made on September 1, 2005. |
(4) | Includes dividends on the Series B Preferred Stock totalling $199,000 for the 3rd quarter 2005. |
(5) | See the Capitalization Table included in the Subsequent Event footnote No. 21 in OptiCare’s Notes to Consolidated Financial Statements on page F-72, which reflects the pro forma impact on OptiCare’s Debt and Stockholders’ Equity resulting from the distribution business sale on January 12, 2005 and the issuance of 280,618 shares of OptiCare’s Series D Preferred Stock. |
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Period | Period | Period | Period | |||||||||||||||||||||||||||||||||
from | from | from | from | |||||||||||||||||||||||||||||||||
May 31, | February 1, | November 1, | February 1, | |||||||||||||||||||||||||||||||||
Nine | Nine | 2003 to | 2003 to | 2002 to | 2002 to | |||||||||||||||||||||||||||||||
Months | Months | Year | January 31, | May 30, | January 31, | October 31, | Year | Year | ||||||||||||||||||||||||||||
Ended | Ended | Ended | 2004 | 2003 | 2003 | 2002 | Ended | Ended | ||||||||||||||||||||||||||||
October 31, | October 31, | January 31, | (Successor | (Predecessor | (Successor | (Predecessor | January 31, | January 31, | ||||||||||||||||||||||||||||
2005 | 2004 | 2005 | Period) | Period) | Period) | Period) | 2002 | 2001 | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 107,785 | $ | 95,043 | $ | 128,026 | $ | 78,123 | $ | 41,088 | $ | 26,336 | $ | 92,035 | $ | 119,496 | $ | 131,830 | ||||||||||||||||||
Income (loss) from continuing operations (1,2,3,4,5) | $ | 1,694 | $ | 350 | $ | 968 | $ | (3,309 | ) | $ | (89 | ) | $ | (1,236 | ) | $ | (1,817 | ) | $ | 153 | $ | 4,286 | ||||||||||||||
Income (loss) from discontinued operations | (86 | ) | (779 | ) | (1,499 | ) | (597 | ) | (227 | ) | (403 | ) | (1,210 | ) | (498 | ) | 509 | |||||||||||||||||||
Net income | $ | 1,608 | $ | (429 | ) | $ | (531 | ) | $ | (3,906 | ) | $ | (316 | ) | $ | (1,639 | ) | $ | (3,027 | ) | $ | (345 | ) | $ | 4,795 | |||||||||||
Income (loss) from continuing operations per common share basic and diluted | $ | 0.11 | $ | 0.03 | $ | 0.07 | $ | (0.28 | ) | $ | (0.01 | ) | $ | (0.15 | ) | $ | (0.23 | ) | $ | 0.02 | $ | 0.55 | ||||||||||||||
Income (loss) from discontinued operations per common share basic and diluted | (0.01 | ) | (0.06 | ) | (0.11 | ) | (0.05 | ) | (0.03 | ) | (0.05 | ) | (0.16 | ) | (0.06 | ) | 0.06 | |||||||||||||||||||
Net income (loss) per common share basic and diluted | $ | 0.10 | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.33 | ) | $ | (0.04 | ) | $ | (0.20 | ) | $ | (0.39 | ) | $ | (0.04 | ) | $ | 0.61 | |||||||||||
Weighted average shares outstanding basic and diluted(6) | 15,828 | 13,974 | 14,068 | 11,999 | 8,193 | 8,193 | 7,804 | 7,803 | 7,803 |
Period Ended | ||||||||||||||||||||||||||||||||||||
October 31, | October 31, | January 31, | January 31, | May 31, | January 31, | November 1, | January 31, | January 31, | ||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2003 | 2003 | 2002 | 2002 | 2001 | ||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||
Cash | $ | 1,713 | $ | 1,153 | $ | 1,613 | $ | 678 | $ | 455 | $ | 0 | $ | 0 | $ | 357 | $ | 240 | ||||||||||||||||||
Working capital | 6,634 | 5,859 | 6,851 | 6,518 | 3,597 | 10,819 | 7,304 | 19,961 | 20,460 | |||||||||||||||||||||||||||
Total assets | 73,388 | 74,525 | 72,878 | 75,845 | 75,799 | 66.674 | 64,877 | 77,405 | 81,078 | |||||||||||||||||||||||||||
Long-term debt | 23,767 | 30,041 | 27,138 | 33,769 | 30,272 | 43,041 | 38,510 | 15,915 | 18,384 | |||||||||||||||||||||||||||
Shareholders’ equity | 26,801 | 21,667 | 24,692 | 20,596 | 21,882 | 4,507 | 6,146 | 49,101 | 49,446 |
(1) | Fiscal 2003 (successor period) includes a charge of $430,097 in connection with the termination of certain employees. |
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(2) | Fiscal 2003 (predecessor period) includes compensation expense of $543,000 to pay a special bonus to certain members of management. The bonus was funded by a capital contribution in that amount by the majority stockholders of U.S. Vision at that time. |
(3) | Fiscal 2002 (predecessor period) includes a charge in the amount of $1,000,000 to resolve a dispute with a vendor that arose in connection with the renewal of its vision care agreement and compensation expense of $343,600 related to the grant of stock and warrants. |
(4) | Fiscal 2001 includes a gain of $493,000 in connection with the sale of the frame manufacturing building located in Florida. This gain was offset by a charge of $204,000 for the write-off of furniture and fixtures and leasehold improvements in connection with the closure of approximately 40 under-performing stores. |
(5) | Fiscal 2000 includes a charge of $752,000 for lease termination costs and the write-off of furniture and fixtures and leasehold improvements in connection with the closure of approximately 80 under-performing stores. |
(6) | Diluted shares in fiscal 2000 were 7,836. |
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For the | ||||||||||||
9 Months | For the | For the | ||||||||||
Ended | Year Ended | Year Ended | ||||||||||
September 30, | December 31, | December 31, | ||||||||||
2005 | 2004 | 2003* | ||||||||||
(In thousands, except per share data) | ||||||||||||
Income Statement Data: | ||||||||||||
Total revenue | $ | 154,351 | $ | 188,708 | $ | 130,779 | ||||||
Income (loss) from continuing operations | 2,923 | (2,918 | ) | (11,781 | ) | |||||||
Balance Sheet Data: | ||||||||||||
Total assets | 154,585 | 157,587 | 173,683 | |||||||||
Long-term obligations | 25,132 | 43,808 | 43,870 | |||||||||
Per Share Data: | ||||||||||||
Income (loss) from continuing operations | $ | 0.16 | $ | (0.17 | ) | $ | (0.94 | ) | ||||
Cash dividends | — | — | — |
* | Since Palisade did not gain common control of the entities until 2003, the combined pro forma financial information is limited to the periods of common control. Accordingly, the 2003 combined pro forma financial information presented includes the accounts of OptiCare for the entire year, the accounts of Refac, the registrant and the legal acquiror, for the ten month period ended December 31, 2003 and the accounts of U.S. Vision for the seven month period ended January 31, 2004. |
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The Number of Shares of Refac Common Stock that OptiCare and U.S. Vision Stockholders Receive in the Mergers will be based upon Fixed Exchange Ratios. The Value of the Shares of Refac Common Stock at the time OptiCare and U.S. Vision Stockholders Receive them Could be Less than the Value of those Shares Today. |
The Market Value of Refac Common Stock may be Affected by Factors Different from or in Addition to the Factors Affecting the Value of OptiCare Common Stock and U.S. Vision Common Stock. |
OptiCare Stockholders are Not Likely to have Increased Liquidity with respect to the Refac Common Stock Received in the Merger. |
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The Operations of OptiCare and U.S. Vision are Different and the Operational Synergies may not be Significant. |
Successful Integration will be Complex and Time-Consuming |
Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 is Likely to be Costly. |
Following the Mergers, Refac May not be able to Compete Effectively with Other Eye Care Distributors and Other Eye Care Services Companies which Have More Resources and Experience than Refac. |
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The Market Price of Refac Common Stock May Decrease as a Result of the Mergers. |
• | the ability of Refac to establish and implement a successful strategic plan for the combined companies; | |
• | the realization of expected business opportunities and growth prospects from the mergers; | |
• | Refac’s operating results and the general operating results of companies in the retail optical industry; | |
• | the public’s reaction to Refac’s press releases, announcements and filings with the SEC; | |
• | changes in general conditions in the U.S. economy, financial markets or the retail optical industry; | |
• | natural disasters, terrorist attacks or acts of war; | |
• | other developments affecting Refac or its competitors; and | |
• | additional issuances of Refac securities. |
Following the Mergers, Refac’s Business will Become Subject to Health Care Regulations, Which Could Materially Adversely Affect Refac’s Business, Financial Condition and Results of Operations. |
• | anti-kickback statutes; | |
• | self-referral laws; | |
• | insurance and licensor requirements associated with the managed care business; | |
• | civil false claims acts; | |
• | corporate practice of medicine restrictions; | |
• | fee-splitting laws; | |
• | facility license requirements and certificates of need; | |
• | regulation of medical devices, including laser vision correction and other refractive surgery procedures; | |
• | FDA and FTC guidelines for marketing laser vision correction; and | |
• | regulation of personally identifiable health information. |
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Changes in the Regulatory Environment Applicable to the Retail Eye Care Business, Including Health-Care Cost Containment Efforts by Medicare, Medicaid and Other Third-Party Payers may Adversely Affect Refac’s Profits Following the Mergers. |
Risks Related to the Eye Care Industry, Including the Cost and Availability of Medical Malpractice Insurance, and Possible Adverse Long-Term Experience With Laser and Other Surgical Vision Correction Could Have a Material Adverse Effect on Refac’s Business, Financial Condition and Results of Operations Following the Mergers. |
Managed Care Companies Face Increasing Threats of Private-Party Litigation, Including Class Actions, Over the Scope of Care for Which Managed Care Companies Must Pay. |
Loss of the Services of Key Management Personnel Could Adversely Affect Refac’s Business. |
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Following the Mergers, Palisade Will Continue to Own Sufficient Shares of Refac Common Stock to Control Refac’s Board of Directors and Control the Outcome of any Stockholder Vote. |
Conflicts of Interest May Arise Between Palisade and Refac. |
OptiCare and U.S. Vision Have Not Had Profitable Operations in Recent Years, and We Cannot Assure that the Combined Company will be Profitable Following the Mergers. |
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If Refac Fails to Execute its Growth Strategy Following the Mergers, It May Not Be Profitable. |
OptiCare’s Business is Substantially Dependent on a Professional Services and Support Agreement with a Professional Affiliate. |
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If OptiCare’s Managed Vision Care Division Fails to Negotiate Profitable Capitated Fee Arrangements, it Could Have A Material Adverse Effect on the Results of Operations and Financial Condition of the Combined Company. |
OptiCare 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 is Unable to Obtain Such Credit As Needed. |
U.S. Vision’s Revenues Depend Largely Upon its Lease Arrangement with J.C. Penney Company, Inc. |
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U.S. Vision’s Revenues Also Depend Upon its Lease Arrangements with Other Department Stores |
U.S. Vision’s Business is Materially Dependent Upon the Revenues that it Derives as a Participating Provider under its Agreement with CMV. |
U.S. Vision’s Business is Materially Dependent upon a Single Laboratory. |
Failure to Have Vision Care Professionals Available in or Near U.S. Vision’s Vision Centers Would Adversely Affect its Ability to Win Managed Care and Host Store Contracts, and Could Prevent U.S. Vision From Operating in Some States. |
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• | whether the OptiCare merger and U.S. Vision merger, if completed, will prove to be profitable acquisitions for Refac; | |
• | the ability of Refac to establish and implement a successful strategic plan for the combined companies; | |
• | the realization of expected business opportunities and growth prospects from the mergers; | |
• | the operating results of Refac, OptiCare and U.S. Vision and the general operating results of companies in the retail optical industry; | |
• | the public’s reaction to Refac’s press releases, announcements and filings with the SEC; | |
• | changes in general conditions in the U.S. economy, financial markets or the retail optical industry; | |
• | natural disasters, terrorist attacks or acts of war; | |
• | regulatory compliance; | |
• | other developments affecting Refac, OptiCare, U.S. Vision or their competitors; and | |
• | additional issuances of Refac or OptiCare securities. |
History |
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Refac Acquisition Search |
Potential Transactions |
27
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Negotiations |
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Approval |
29
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Refac Loan to OptiCare |
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• | Refac’s business, current financial condition, results of operations and the performance of its stock price since the completion of the Palisade merger in February 2003; | |
• | The fact that Refac liquidated most of its operations in 2002 and, since the end of 2002, its business has been limited to managing certain existing license agreements and related contracts and that it expects a significant decline in operating revenues related to such agreements and contracts during the balance of 2005 and estimates that its operating revenues will aggregate less than $200,000 in 2006; | |
• | The fact that Refac commenced an acquisition search in May 2003 which, since January 2004, has been focused on opportunities in the asset management sector of the financial services industry and that even with the assistance of two search firms has not been able to find a suitable acquisition candidate; | |
• | The business, current financial condition and the results of operations of each of OptiCare and U.S. Vision and the performance of OptiCare’s stock price; | |
• | The opportunities for organic growth for both OptiCare and U.S. Vision and potential for a future acquisition of one or more other companies in the eye care industry; | |
• | The opinions of Mufson, subject to the assumptions made, matters considered and limitations on the review undertaken in connection with such opinions, that the consideration to be received pursuant to each of the mergers is fair, from a financial point of view, to Refac stockholders (other than Palisade and its affiliates); | |
• | The fact that Palisade, which beneficially owns 84% of OptiCare’s outstanding shares (on a fully diluted basis) agreed to vote its shares in favor of the OptiCare merger agreement and the OptiCare merger; |
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• | The fact that the U.S. Vision merger is not conditioned on the approval of U.S. Vision stockholders, because all of the stockholders of U.S. Vision executed and delivered a written consent constituting the required stockholder approval before entering into the U.S. Vision merger agreement; | |
• | The fact that the holders of all of the preferred stock of OptiCare have agreed to convert their holdings to common stock prior to the closing of the merger; | |
• | The fact that OptiCare and U.S. Vision stockholders will not have any appraisal rights in the mergers; | |
• | The terms of each of the merger agreements, including the representations and warranties made by OptiCare and U.S. Vision, the limited number and nature of the conditions to OptiCare’s and U.S. Vision’s obligations to consummate the mergers and the limited risk of non-satisfaction of these conditions; and | |
• | The fact that certain Refac stockholders have the right to require Refac to purchase the shares they acquired in the Palisade merger at $8.29 per share and that if most of these stockholders exercise this option, Refac may not qualify for continued listing on the American Stock Exchange. |
• | The results of operations of OptiCare and U.S. Vision in recent years and the fact that OptiCare’s and U.S. Vision’s operations had not been profitable during this period; | |
• | The highly competitive nature of the retail optical industry, the significant regulations to which the business of the combined company will be subject and the fact that Refac does not have any experience in this industry; | |
• | The potential conflicts of interests of (i) Palisade, as the largest stockholder of each of Refac, OptiCare and U.S. Vision, (ii) Refac directors, Melvin Meskin, Mark S. Newman, Clark A. Johnson, and Dennison T. Veru who are also directors of OptiCare and (iii) Refac director Dennison T. Veru who is an officer of PCM and a member of Holdings. (See “Interests of Certain Persons in the Mergers” on page 50); | |
• | The opportunities for growth and the potential for increased stockholder value if Refac were to continue seeking an acquisition candidate in the asset management sector of the financial services industry or in any other industry; | |
• | The challenges and costs of integrating the operations of Refac, OptiCare and U.S. Vision; and | |
• | The risk that the mergers might not be completed in a timely manner or at all. |
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Opinion on OptiCare Merger |
• | reviewed a draft of the OptiCare merger agreement and related documents dated August 22, 2005; | |
• | reviewed OptiCare’s Quarterly Reports on Form 10-Q for the three months ended March 31, and June 30, 2005 and its Annual Reports on Form 10-K for the years ended December 31, 2002, 2003 and 2004; | |
• | reviewed OptiCare’s budget for the year ending December 31, 2005 and forecasts prepared by the management of OptiCare for the four years ending December 31, 2008 and prepared discounted cash flow analyses from such forecasts; | |
• | reviewed the terms of recent financing transactions between OptiCare, its stockholders and Palisade; | |
• | discussed with members of the senior management of OptiCare the company’s business, operating results, financial condition, prospects and the implications of the merger; | |
• | compared stock prices, operating results, earnings estimates and financial condition of publicly traded eyewear manufacturers and specialty retailers, and managed care providers it deemed reasonably comparable to OptiCare, to similar data for OptiCare; | |
• | compared valuation multiples (to the extent available) and other financial terms of mergers and acquisitions of eyewear manufacturers and specialty retailers, and managed care providers it deemed reasonably comparable to OptiCare, to similar data for OptiCare; | |
• | analyzed Refac’s stock price trading history, and reviewed its Quarterly Reports on Form 10-Q for the three months ended March 31, 2005 and June 30, 2005 and its Annual Report on Form 10-K for the year ended December 31, 2004; and | |
• | reviewed certain other information and performed other analyses that it deemed appropriate. |
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Enterprise Value as a | ||||||||
Multiple of: | ||||||||
LTM | LTM | |||||||
EBITDA | Net Sales | |||||||
All Companies | ||||||||
Median | 6.4x | 0.70x | ||||||
High | 19.1x | 3.12x | ||||||
Low | 5.3x | 0.38x | ||||||
Small Capitalization Companies | ||||||||
Median | 5.9x | 0.57x | ||||||
High | 7.2x | 1.05x | ||||||
Low | 5.3x | 0.38x |
Enterprise Value as a | ||||||||
Multiple of: | ||||||||
LTM | LTM | |||||||
EBITDA | Net Sales | |||||||
All Companies | ||||||||
Median | 8.0x | 0.73x | ||||||
High | 20.2x | 1.20x | ||||||
Low | 3.3x | 0.26x | ||||||
Small Capitalization Companies | ||||||||
Median | 7.8x | 0.56x | ||||||
High | 8.8x | 0.90x | ||||||
Low | 7.7x | 0.26x |
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Effective Date | Acquiror | Target | ||
Pending | Berkshire Partners LLC | National Vision, Inc. | ||
March 22, 2005 | Carl Zeiss Group | Sola International, Inc. | ||
March 1, 2005 | Moulin Global Eyecare Holdings, Ltd. | Eye Care Centers of America, Inc. | ||
October 5, 2004 | Luxottica Group SpA | Cole National Corp. | ||
September 2, 2003 | Luxottica South Pacific Pty, Ltd. | OPSM Group, Ltd. | ||
October 31, 2002 | Kayak Acquisition Corp. | OptiCare, Inc. | ||
June 20, 2001 | Eyeshop.com, Inc. | Sight Resource Corp. | ||
April 4, 2001 | Luxottica Group SpA | Sunglass Hut International, Inc. | ||
February 23, 2001 | Marcolin SpA | Creative Optics, Inc. | ||
August 17, 2000 | Bushnell Performance Optics, Inc. | Serengeti Eyewear, Inc. |
Effective Date | Acquiror | Target | ||
January 1, 2005 | AMERIGROUP Corp. | CarePlus Health Plan, LLC | ||
December 13, 2004 | Pacificare Health Systems, Inc. | American Medical Security Grp,. Inc. | ||
July 29, 2004 | Unitedhealth Group, Inc. | Oxford Health Plans, Inc. | ||
October 27, 2003 | Unitedhealth Group, Inc. | Mid-Atlantic Medical | ||
October 27, 2003 | Anthem, Inc. | Wellpoint Health Networks | ||
September 30, 2003 | Centene Corp. | Family Health Plan (Medicaid only) | ||
September 24, 2003 | Wellpoint Health Networks, Inc. | Cobalt Corp. | ||
September 1, 2003 | Coventry Health Care, Inc. | Altius Health Plans, Inc. | ||
March 17, 2003 | AMERIGROUP Corp. | St. Augustine Medicaid | ||
September 23, 2002 | Unitedhealth Group, Inc. | AmeriChoice Corp. | ||
January 31, 2002 | WellPoint Health Networks, Inc. | RightChoice Managed Care, Inc. | ||
June 19, 2000 | Merck & Co., Inc. | ProVantage Health Service |
Enterprise Value as a | ||||||||
Multiple of: | ||||||||
LTM | LTM | |||||||
EBITDA | Net Sales | |||||||
Median | 9.0x | 1.01x | ||||||
High | 10.5x | 1.64x | ||||||
Low | 4.2x | 0.27x |
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Enterprise Value as a | ||||||||
Multiple of: | ||||||||
LTM | LTM | |||||||
EBITDA | Net Sales | |||||||
Median | 8.75x | 0.68x | ||||||
High | 12.66x | 1.19x | ||||||
Low | 7.15x | 0.17x |
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• | reviewed a draft of the U.S. Vision merger agreement and related documents dated August 22, 2005; | |
• | reviewed the audited financial statements of U.S. Vision as of and for the years ended January 31, 2001, 2002, (2003 audited financials were not prepared), 2004 and 2005; | |
• | reviewed internally prepared, interim financial statements of U.S. Vision for the five months ended June 30, 2005 and forecast for the fiscal year ending January 31, 2006; | |
• | reviewed forecasts prepared by the management of U.S. Vision for the five years ending January 31, 2010 and prepared discounted cash flow analyses from such forecasts; | |
• | reviewed the terms of recent financing transactions between U.S. Vision, its stockholders and Palisade; | |
• | discussed with members of the senior management of U.S. Vision the company’s business, operating results, financial condition, prospects and the implications of the U.S. Vision merger; | |
• | compared stock prices, operating results, earnings estimates and financial condition of publicly traded eyewear manufacturers and specialty retailers it deemed reasonably comparable to U.S. Vision, to similar data for U.S. Vision; | |
• | compared valuation multiples (to the extent available) and other financial terms of mergers and acquisitions of eyewear manufacturers and specialty retailers it deemed reasonably comparable to U.S. Vision, to similar data for U.S. Vision; | |
• | analyzed Refac’s stock price and trading history, and reviewed its Quarterly Reports on Form 10-Q for the three months ended March 31, 2005 and June 30, 2005 and its Annual Report on Form 10-K for the year ended December 31, 2004; and | |
• | reviewed certain other information and performed other analyses that it deemed appropriate. |
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Enterprise Value as a | ||||||||
Multiple of: | ||||||||
LTM | LTM | |||||||
EBITDA | Net Sales | |||||||
All Companies | ||||||||
Median | 6.4x | 0.70x | ||||||
High | 19.1x | 3.12x | ||||||
Low | 5.3x | 0.38x | ||||||
Small Capitalization Companies | ||||||||
Median | 5.9x | 0.57x | ||||||
High | 7.2x | 1.05x | ||||||
Low | 5.3x | 0.38x |
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Effective Date | Acquiror | Target | ||
Pending | Berkshire Partners LLC | National Vision, Inc. | ||
March 22, 2005 | Carl Zeiss Group | Sola International, Inc. | ||
March 1, 2005 | Moulin Global Eyecare Holdings, Ltd. | Eye Care Centers of America, Inc. | ||
October 5, 2004 | Luxottica Group SpA | Cole National Corp. | ||
September 2, 2003 | Luxottica South Pacific Pty, Ltd. | OPSM Group, Ltd. | ||
October 31, 2002 | Kayak Acquisition Corp. | U.S. Vision, Inc. | ||
June 20, 2001 | Eyeshop.com, Inc. | Sight Resource Corp. | ||
April 4, 2001 | Luxottica Group SpA | Sunglass Hut International, Inc. | ||
February 23, 2001 | Marcolin SpA | Creative Optics, Inc. | ||
August 17, 2000 | Bushnell Performance Optics | Serengeti Eyewear, Inc. |
Enterprise Value as a | ||||||||
Multiple of: | ||||||||
LTM | LTM | |||||||
EBITDA | Net Sales | |||||||
Median | 9.0x | 1.01x | ||||||
High | 10.5x | 1.64x | ||||||
Low | 4.2x | 0.27x |
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• | The committee’s belief, based on its review and consideration of OptiCare’s business, the markets in which it competes, its prospects and competitive vulnerabilities, that the merger with Refac and affiliation with U.S. Vision provides an opportunity for OptiCare’s stockholders to carry forward their equity investment in a combined enterprise with a better prospect for success and higher equity value for the stockholders than continuing to pursue OptiCare’s current strategy of growing its own business; | |
• | The fact that all shares of OptiCare’s Series B preferred stock, including the related dividends and redemption rights, would be eliminated in the OptiCare merger. |
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• | The committee’s belief, after taking into account the current and historical financial condition, results of operations, competitive position, business prospects, opportunities and strategic objectives of each of Refac, OptiCare and U.S. Vision, including the potential risks involved in achieving those prospects and objectives, that (1) the financial prospects of OptiCare, U.S. Vision and Refac on a combined basis are more favorable than the financial prospects of OptiCare on a stand alone basis, (2) that a combined company would be able to compete more successfully, leading to a higher equity value and (3) that the merger consideration more than adequately reflects the long term value inherent in OptiCare as a stand alone company; | |
• | The historical and market prices of the Refac and OptiCare shares and the premium implied by the fixed 0.0472 exchange ratio based on the market prices of the OptiCare and Refac common stock as of recent dates before approval of the transaction; | |
• | The ability of a combined company with Refac’s cash resources to more effectively pursue, in a coordinated manner, acquisitions, strategic growth opportunities and other expansion strategies; | |
• | The elimination of the potential for conflicts of interest among the companies, enabling management to focus time and resources on the combined businesses and fully exploit the combined assets; | |
• | The possible reductions in costs associated with eliminating OptiCare’s status as a public company; | |
• | The freeing up of OptiCare management to focus on the day to day operations of OptiCare’s lines of business as a result of the elimination of the responsibilities of operating a public company; | |
• | The United States federal income tax consequences of the merger; | |
• | The ability of OptiCare’s stockholders, through the ownership of Refac common stock, to continue to participate in OptiCare’s growth, while also participating in a more diversified company, with broader access to capital markets and greater borrowing capacity to finance acquisition and expansion; and | |
• | The fact that the special committee received an opinion from Woodward that, as of August 17, 2005, and based upon and subject to the assumptions, limitations and qualifications described in such opinion, the exchange ratio is fair from a financial point of view to holders of OptiCare common stock other than Palisade and the other preferred stockholder. |
• | The results of operations of OptiCare and U.S. Vision in recent years and the fact that OptiCare’s and U.S. Vision’s operations had not been profitable during this period; | |
• | The highly competitive nature of the retail optical industry, the significant regulations to which the business of the combined company will be subject and the fact that Refac does not have any experience in the eye care industry; | |
• | The challenge and costs of integrating the operations of Refac, OptiCare and U.S. Vision; and | |
• | The factors discussed in this joint proxy statement/ prospectus under “Risk Factors”. |
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Summary of Woodward’s Financial Analyses |
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Discounted Cash Flow Analysis |
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Comparable Merger and Acquisition Transaction Analysis |
Enterprise Value as a | ||||||||||||
Multiple of: | ||||||||||||
Net | Book | |||||||||||
Revenues | Income | Value | ||||||||||
Average | 0.83 | 18.66 | 2.52 | |||||||||
Median | 0.83 | 14.72 | 1.96 | |||||||||
Modified Average | 0.79 | 14.72 | 2.36 |
Low | Medium | High | ||||||||||
Implied Enterprise Value Range | $ | 9,354 | $17,812 | $ | 26,270 | |||||||
IMPLIED ENTERPRISE VALUE | $ | 17,812 | Medium Value |
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Enterprise Value as a | ||||||||||||
Multiple of: | ||||||||||||
Net | Book | |||||||||||
Revenues | Income | Value | ||||||||||
Average | 0.87 | 18.59 | 5.40 | |||||||||
Median | 0.61 | 18.40 | 5.63 | |||||||||
Modified Average | 0.66 | 17.43 | 5.03 |
Low | Medium | High | ||||||||||
Implied Enterprise Value Range | $ | 15,759 | $19,125 | $ | 22,492 | |||||||
IMPLIED ENTERPRISE VALUE | $ | 19,125 | Medium |
Enterprise Value as a | ||||||||||||
Multiple of: | ||||||||||||
Net | Book | |||||||||||
Revenues | Income | Value | ||||||||||
Average | 0.83 | 18.66 | 2.52 | |||||||||
Median | 0.83 | 14.72 | 1.96 | |||||||||
Modified Average | 0.79 | 14.72 | 2.36 |
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Low | Medium | High | ||||||||||
Implied Enterprise Value Range: | $ | 54,705 | $84,115 | $ | 113,525 | |||||||
IMPLIED ENTERPRISE VALUE | $ | 69,410 | Average of Low and Medium |
Analysis of Selected Publicly Traded Comparable Companies |
Market Value as a | ||||||||||||||||||||
Enterprise Value as a | Multiple of: | |||||||||||||||||||
Multiple of: | ||||||||||||||||||||
Net | Book | |||||||||||||||||||
Revenues | EBIT | EBITDA | Income | Value | ||||||||||||||||
Average | 0.78 | 13.20 | 9.95 | 30.80 | 5.28 | |||||||||||||||
Median | 0.82 | 11.43 | 9.33 | 13.27 | 4.03 | |||||||||||||||
Modified Average | 0.82 | 11.43 | 9.33 | 13.27 | 4.03 |
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Low | Medium | High | ||||||||||
Implied Enterprise Value Range | $ | 7,265 | $16,690 | $ | 26,115 | |||||||
IMPLIED ENTERPRISE VALUE | $ | 11,977 | Average of Low and Medium |
Market Value as a | ||||||||||||||||||||
Enterprise Value as a | Multiple of: | |||||||||||||||||||
Multiple of: | ||||||||||||||||||||
Net | Book | |||||||||||||||||||
Revenues | EBIT | EBITDA | Income | Value | ||||||||||||||||
Average | 0.91 | 10.81 | 7.29 | 15.88 | 3.45 | |||||||||||||||
Median | 0.91 | 10.81 | 7.29 | 15.88 | 3.45 |
Low | Medium | High | ||||||||||
Implied Enterprise Value Range | $ | 1,176 | $12,432 | $ | 23,689 | |||||||
IMPLIED ENTERPRISE VALUE | $ | 12,432 | Medium Value |
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Market Value as a | ||||||||||||||||||||
Enterprise Value as a | Multiple of: | |||||||||||||||||||
Multiple of: | ||||||||||||||||||||
Net | Book | |||||||||||||||||||
Revenues | EBIT | EBITDA | Income | Value | ||||||||||||||||
Average | 0.63 | 11.87 | 8.60 | 30.80 | 4.14 | |||||||||||||||
Median | 0.64 | 9.67 | 6.93 | 13.27 | 2.78 | |||||||||||||||
Modified Average | 0.64 | 9.67 | 6.93 | 13.27 | 2.78 |
Low | Medium | High | ||||||||||
U.S. Vision’s Implied Enterprise Value Range | $ | 53,901 | $73,425 | $ | 92,949 | |||||||
IMPLIED ENTERPRISE VALUE | $ | 63,663 | Average of Low and Medium |
Contribution Analysis |
OptiCare | U.S. Vision | Refac | ||||||||
$25.5 - $33.2 million | $37.9 - $41.2 million | $29.6 - $31.6 million |
Other Factors |
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Refac |
• | Palisade, which beneficially owns approximately 91% of Refac’s outstanding common stock, also beneficially owns 84% of OptiCare’s outstanding shares (on a fully diluted basis) and 88% of U.S. Vision’s outstanding common stock; | |
• | Melvin Meskin and Mark S. Newman, directors of Refac, are also directors of OptiCare and hold options to purchase 110,000 and 290,000 shares of OptiCare common stock, respectively. Mr. Meskin also owns 150,000 shares of OptiCare common stock and was a consultant to OptiCare from 2002 to 2004. | |
• | Clark A. Johnson, a director of Refac, is also a director of OptiCare and holds 226,000 shares and options to purchase 80,000 shares of OptiCare common stock. Mr. Johnson also owns a 5% preferred, non-voting equity interest in PCM; | |
• | Dennison T. Veru, a director of Refac and OptiCare, is also an officer and member of PCM and Holdings. Mr. Veru was appointed to the Refac and OptiCare boards on May 9, 2005 and August 8, 2005, respectively, to fill the vacancies caused by the resignation of Mark S. Hoffman. Mr. Hoffman was an officer and member of PCM until September 30, 2005; | |
• | Mark N. Kaplan, a director of Refac, is Of Counsel to the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, which has provided legal services to Refac since 1982 and is representing Refac in connection with the mergers. Mr. Kaplan and Skadden, Arps, Slate, Meagher & Flom LLP have also from time to time represented, and continue to represent, Palisade and certain of its affiliates, including the representation of Palisade in connection with its acquisition of control of U.S. Vision in May 2003. Such law firm has provided to Refac a legal opinion regarding the issuance of Refac common stock in the mergers. In addition, Mr. Kaplan is the trustee for certain trusts for the benefit of the children of one of PCM’s principals; and | |
• | Pursuant to employment agreements entered into on April 1, 2005, each of Robert L. Tuchman, Refac’s Chief Executive Officer, and Raymond A. Cardonne, Jr., Refac’s Chief Financial Officer, may enter into separate arrangements for his own account with PCM and/or any of its affiliated companies that are engaged in private equity or investment management pursuant to which he may become a member, partner, officer, director or stockholder of such entity or may provide consulting or professional services thereto provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under his employment agreement. Messrs. Tuchman and Cardonne also have interests in the general partner of a private equity partnership recently formed by PCM. |
OptiCare |
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• | Palisade, which beneficially owns 84% of OptiCare’s outstanding shares (on a fully diluted basis), owns 91% of Refac’s outstanding common stock and 88% of U.S. Vision’s outstanding common stock; | |
• | On September 1, 2005, Palisade granted Refac a proxy which entitles Refac to vote Palisade’s shares of OptiCare common stock in its discretion at any meeting of OptiCare’s stockholders and on every action by written consent of OptiCare’s stockholders. Palisade may revoke this proxy at any time; | |
• | Melvin Meskin and Mark S. Newman, directors of OptiCare, are also directors of Refac. | |
• | Clark A. Johnson, a director of OptiCare, is also a director of Refac and owns a 5% preferred, non-voting equity interest in PCM; and | |
• | Dennison T. Veru, a director of OptiCare, is also a director of Refac and an officer and member of PCM and Holdings. Mr. Veru was appointed to the board on May 9, 2005, upon the resignation of Mark S. Hoffman, who was an officer and member of Holdings until September 30, 2005, and was until May 9, 2005 a director of Refac. | |
• | OptiCare is party to an employment agreement with Jason M. Harrold, President of its Managed Vision Division. Certain change of control terms under this agreement will be triggered upon the closing of the merger. Under this agreement, Mr. Harrold could be entitled to receive a lump sum payment equal to his annual salary if within one year after the merger his duties are materially diminished, he is relocated more than 50 miles, he is terminated without cause or his agreement is not renewed. |
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• | foreign persons; | |
• | financial institutions; | |
• | tax-exempt organizations; | |
• | insurance companies; | |
• | mutual funds; | |
• | traders in securities that electmark-to-market; | |
• | dealers in securities or foreign currencies; | |
• | persons who received their OptiCare and U.S. Vision common stock through the exercise of employee stock options or otherwise as compensation; | |
• | persons who have a functional currency other than the U.S. dollar; and | |
• | persons who hold shares of OptiCare and U.S. Vision common stock as part of a hedge, straddle or conversion transaction. |
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• | No gain or loss will be recognized by OptiCare or U.S. Vision as a result of the mergers; | |
• | No gain or loss will be recognized by a stockholder of U.S. Vision who receives in exchange for all of his, her or its shares of U.S. Vision common stock solely shares of Refac common stock, except for any gain recognized with respect to cash received instead of fractional shares of Refac common stock; | |
• | No gain or loss will be recognized by a stockholder of OptiCare who receives in exchange for all of his, her or its shares of OptiCare common stock solely shares of Refac common stock, except for any gain recognized with respect to cash received instead of a fractional share of Refac common stock; | |
• | The aggregate tax basis of the shares of Refac common stock received by holders of OptiCare or U.S. Vision common stock who exchange all of their OptiCare or U.S. Vision common stock, as the case may be, for shares of Refac common stock generally will be the same as the aggregate tax basis of the shares of OptiCare or U.S. Vision common stock surrendered in exchange therefor reduced by any amount allocable to a fractional share of Refac common stock for which cash is received; and | |
• | The holding period of the shares of Refac common stock received by a U.S. Vision or OptiCare stockholder generally will include the holding period of shares of U.S. Vision or OptiCare common stock surrendered in exchange therefor. |
OptiCare Merger — Different Consideration |
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Structure of the Merger |
Completion and Effectiveness of the Merger |
Merger Consideration |
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Exchange of OptiCare Stock Certificates for Refac Stock Certificates |
Withholding Rights |
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Termination of Exchange Fund |
No Liability |
Conditions to Completion of the OptiCare Merger |
• | the approval and adoption of the OptiCare merger agreement by OptiCare stockholders; | |
• | the approval and adoption by Refac stockholders of the OptiCare merger agreement and the OptiCare merger, including the issuance of shares in the merger; | |
• | the registration statement of which this joint proxy statement/ prospectus is a part must be declared effective under the Securities Act and the registration statement must not be subject to any stop order or proceeding seeking a stop order and all state securities authorizations necessary to issue Refac common stock in the merger must have been received; | |
• | the receipt of all material governmental and regulatory consents, approvals, orders and authorizations required to complete the merger; | |
• | the absence of any legal prohibition having the effect of preventing or prohibiting completion of the OptiCare merger; | |
• | the absence of any litigation by any governmental entity seeking to prohibit or restrain the OptiCare merger or that otherwise would have a material adverse effect on the combined company; | |
• | the representations and warranties of the other party, disregarding all qualifications and exceptions relating to materiality or material adverse effect, being true and correct at and as of the effective time of the OptiCare merger as if they were made on that date (except to the extent that the representations and warranties speak as of another date), except where the failure of the representations and warranties to be true and correct would not have a material adverse effect on the other party, and the receipt of a certificate of an executive officer of the other party to that effect; | |
• | the other party having performed or complied with its agreements and covenants in the OptiCare merger agreement in all material respects, and the receipt of a certificate of an executive officer of the other party to that effect; and | |
• | the closing of the U.S. Vision merger prior to or simultaneously with the OptiCare merger. |
• | the absence of any facts, events, changes, effects, developments, conditions or occurrences, since the date of the OptiCare merger agreement, that would reasonably be expected to have a material adverse effect on OptiCare; |
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• | the delivery by OptiCare to Refac of certificates from the Secretary of State of Delaware as to the good standing of OptiCare; | |
• | the delivery by OptiCare of certain letters from its affiliates for purposes of Rule 145 of the Securities Act; | |
• | the conversion of all outstanding preferred stock of OptiCare by preferred stockholders into shares of OptiCare common stock; and | |
• | OptiCare Eye Health Centers, Inc. (a wholly-owned subsidiary of OptiCare) and OptiCare P.C., shall have executed an Amended and Restated Professional Services and Support Agreement. |
• | the business, assets, financial condition or results of operations of the referenced company and its subsidiaries, taken as a whole; | |
• | the ability of the referenced company to perform its obligations under the OptiCare merger agreement; or | |
• | the ability of the referenced company to complete the OptiCare merger and related transactions. |
• | the economy in general in the U.S., which events, changes, effects, developments, conditions or occurrences do not disproportionately affect the referenced company relative to the other participants in industry in which it operates; or | |
• | any change in the referenced company’s stock price or trading volume, in and of itself. |
Representations and Warranties |
• | corporate organization, standing and power; | |
• | subsidiaries; | |
• | capital structure; | |
• | authority, execution and delivery and enforceability; | |
• | absence of conflicts and required filings and consents; | |
• | SEC filings and undisclosed liabilities; | |
• | the absence of certain changes or events since December 31, 2004; | |
• | information supplied for inclusion in this joint proxy statement/ prospectus; |
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• | the opinion of each party’s financial advisor; | |
• | litigation; and | |
• | compliance with applicable laws. |
• | environmental matters; | |
• | intellectual property | |
• | employee benefit plans; | |
• | labor and other employment matters; | |
• | material agreements; | |
• | real estate and other properties; | |
• | tax matters; | |
• | products liability; and | |
• | brokers used in connection with the OptiCare merger agreement. |
Conduct of Business Before Completion of the OptiCare Merger |
• | conduct its business only in the usual, regular and ordinary course in substantially the same manner as previously conducted; | |
• | use its commercially reasonable efforts to preserve intact its current business organization and keep available the services of its current officers and employees; and | |
• | use all commercially reasonable efforts to preserve its current relationships with its customers, suppliers, licensors, licensees, lessors, distributors and other persons with which it has business dealings in order that its goodwill and ongoing business will not be impaired at the time of the completion of the OptiCare merger. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly-owned subsidiary of OptiCare to that subsidiary’s security holders; | |
• | split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, other than pursuant to the terms of stock options and warrants outstanding as of the date of the OptiCare merger agreement |
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or pursuant to the conversion of preferred stock or convertible debt outstanding as of the date of the OptiCare merger agreement; | ||
• | purchase, redeem or otherwise acquire any shares of capital stock of OptiCare, or securities convertible into capital stock of OptiCare, other than pursuant to the terms of stock options and warrants outstanding as of the date of the OptiCare merger agreement or pursuant to the conversion of preferred stock or convertible debt outstanding as of the date of the OptiCare merger agreement; | |
• | issue, deliver, sell or grant any shares of its capital stock, or voting securities, or securities convertible into capital stock or voting securities, other than the issuance of OptiCare common stock pursuant to the terms of stock options and warrants outstanding as of the date of the OptiCare merger agreement or pursuant to the conversion of preferred stock; | |
• | amend or otherwise change its charter, by-laws or other organizational documents; | |
• | acquire or agree to acquire any equity interest in or material assets or business of any person, or except purchases of inventory in the ordinary course of business consistent with past practice; | |
• | grant to any current or former employee, officer, director or independent contractor any loan or increase in compensation, benefits, perquisites or any bonus or award, or pay any bonus to any such person, except to the extent required under employment agreements in effect as of the date of the merger agreement or in the ordinary course of business consistent with past practice; | |
• | grant to any current or former employee, officer, director or independent contractor any increase in severance, change in control or termination pay or benefits, except to the extent required under any agreement in effect as of the date of the OptiCare merger agreement; | |
• | enter into any employment, loan, retention, consulting, indemnification, termination or similar agreement with any current or former employee, officer, director or independent contractor, except in the ordinary course of business consistent with past practice; | |
• | enter into any change of control, severance or similar agreement with any current or former employee, officer, director or independent contractor; | |
• | take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan, except in the ordinary course of business consistent with past practice; | |
• | establish, adopt, enter into, terminate or amend any collective bargaining agreement or benefit plan, except in the ordinary course of business consistent with past practice, or take any action to accelerate any rights or benefits or make any material determinations, under any collective bargaining agreement or benefit plan; | |
• | make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of OptiCare, other than as may have been required by a change in generally accepted accounting principles or any governmental entity; | |
• | sell, lease, license, transfer, pledge or otherwise dispose of or subject to any lien any properties or assets that have a fair market value, individually, in excess of $100,000 or, in the aggregate, in excess of $1,000,000; | |
• | other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date of the OptiCare merger agreement or any refinancing of the existing credit facility or line of credit that does not exceed the amount borrowable under the existing credit facility or line of credit (i) incur any indebtedness for borrowed money or guarantee the indebtedness of another person, (ii) issue or sell any debt securities or warrants or other rights to acquire any debt securities or (iii) guarantee any debt securities of another person; | |
• | make any loans, advances or capital contributions to, or investments in, any other person, other than to or in any wholly-owned subsidiary, individually in excess of $100,000 or in the aggregate in excess of $1,000,000; |
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• | make or agree to make any new capital expenditures, other than for emergency repairs necessary to avoid significant disruption to OptiCare’s business consistent with past practices; | |
• | make any material tax election or settle or compromise any material tax liability or refund, other than tax elections required by law; | |
• | cancel any indebtedness owed to it or waive any claims or rights of substantial value or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it is a party, except in the ordinary course of business consistent with past practice; | |
• | cancel, terminate, or adversely modify or amend any material contract of OptiCare, or waive, release, assign, settle or compromise any material rights or claims, or any material litigation or arbitration, except in the ordinary course of business consistent with past practice; | |
• | enter into any contract having a duration of more than one year and total payment obligations of OptiCare in excess of $1,000,000, other than contracts terminable within one year or the renewal, on substantially similar terms, of any contract existing on the date of the OptiCare merger agreement; or | |
• | authorize, commit or agree to take any of the actions above. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly-owned subsidiary of Refac to that subsidiary’s security holders; | |
• | split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, other than pursuant to the terms of stock options and warrants outstanding as of the date of the OptiCare merger agreement; | |
• | purchase, redeem or otherwise acquire any shares of capital stock of Refac, or securities convertible into capital stock of Refac, other than pursuant to the terms of stock options and warrants outstanding as of the date of the OptiCare merger agreement or pursuant to the terms of the put option under the Agreement and Plan of Merger, dated August 19, 2002, among Palisade, Palisade Merger Corp. and Refac, as amended; | |
• | issue, deliver, sell or grant any shares of its capital stock or voting securities, or securities convertible into capital stock or voting securities, other than (i) pursuant to the terms of Refac’s stock options and warrants or the conversion of convertible debt in accordance with their present terms, in each case, outstanding as of the date of the OptiCare merger agreement, (ii) grants of Refac equity awards and stock options pursuant to its benefit plans and (iii) pursuant to the U.S. Vision merger agreement; | |
• | amend or otherwise change its charter or by-laws, other than pursuant to the charter amendment proposals; | |
• | acquire or agree to acquire any equity interest in or business of any person, or acquire or agree to acquire any material assets other than the acquisition of U.S. Vision pursuant to the U.S. Vision merger agreement; | |
• | sell, lease, license, transfer, pledge or otherwise dispose of or subject to any lien any properties or assets that have a fair market value, individually, in excess of $250,000 or, in the aggregate, in excess of $2,500,000; | |
• | (i) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, (ii) issue or sell any debt securities or warrants or other rights to acquire any debt securities or (iii) guarantee any debt securities of another person; |
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• | cancel any indebtedness owed to it or waive any claims or rights of substantial value or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it is a party, except in the ordinary course of business consistent with past practice; or | |
• | authorize, commit or agree to take any of the actions above. |
Advice of Changes |
Access to Information |
Regulatory Approvals |
• | obtaining all necessary actions or nonactions, waivers, consents and approvals from governmental entities and making all necessary registrations and filings and taking all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity; | |
• | obtaining all necessary consents, approvals or waivers from third parties; | |
• | defending any lawsuits or other legal proceedings challenging the OptiCare merger agreement or the completion of the OptiCare merger; and | |
• | executing and delivering any additional instruments necessary to complete the OptiCare merger and other transactions contemplated by the OptiCare merger agreement. |
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Public Announcements |
Conversion of Preferred Stock |
Professional Services and Support Agreement |
OptiCare Stock Options and Warrants |
• | each stock option will be exercisable for that number of whole shares of Refac common stock equal to the product of the number of shares of OptiCare common stock that were issuable upon exercise of such stock option or warrant immediately prior to the effective time of the OptiCare merger multiplied by 0.0472, rounded to the nearest whole number of shares of Refac common stock; and | |
• | the per share exercise price for each share of Refac common stock issuable upon exercise of each stock option or warrant so converted will be equal to the number determined by dividing the exercise price per share of OptiCare common stock at which such stock option or warrant was exercisable immediately prior to the effective time of the OptiCare merger by 0.0472, rounded to the nearest whole cent. |
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Indemnification |
Termination of the OptiCare Merger Agreement |
• | the OptiCare merger is not completed on or before April 30, 2006, except that this right to terminate the OptiCare merger agreement is not available to any party whose failure to fulfill any obligation under the OptiCare merger agreement has been the cause of, or results in, the failure of the OptiCare merger to occur on or before such date; or | |
• | any governmental entity issues an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the OptiCare merger, and the order, decree, ruling or other action has become final and nonappealable. |
Effect of Termination |
Amendments, Extensions and Waivers |
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• | extend the time for the performance of any of the obligations or other acts of the other parties; | |
• | waive any inaccuracies in the representations and warranties of the other parties included in the OptiCare merger agreement or in any document delivered pursuant to the OptiCare merger agreement; or | |
• | waive compliance by the other parties with any of the agreements or conditions included in the OptiCare merger agreement. |
Fees and Expenses |
Tax Treatment |
Structure of the U.S. Vision Merger |
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Completion and Effectiveness of the U.S. Vision Merger |
Merger Consideration |
Exchange of U.S. Vision Stock Certificates for Refac Stock Certificates |
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Withholding Rights |
Conditions to Completion of the U.S. Vision Merger |
• | the registration statement of which this joint proxy statement/ prospectus is a part must be declared effective under the Securities Act and the registration statement must not be subject to any stop order or proceeding seeking a stop order and all state securities authorizations necessary to issue Refac common stock in the U.S. Vision merger have been received; | |
• | the receipt of all material governmental and regulatory consents, approvals, orders and authorizations required to complete the U.S. Vision merger; | |
• | the absence of any legal prohibition having the effect of preventing or prohibiting completion of the U.S. Vision merger; | |
• | the absence of any litigation by any governmental entity seeking to prohibit or restrain the U.S. Vision merger or that otherwise would have a material adverse effect on the combined company; | |
• | the representations and warranties of the other party (other than the U.S. Vision stockholders), disregarding all qualifications and exceptions relating to materiality or material adverse effect, being true and correct at and as of the effective time of the U.S. Vision merger as if they were made on that date (except to the extent that the representations and warranties speak as of another date), except where the failure of the representations and warranties to be true and correct would not have a material adverse effect on the other party, and the receipt of a certificate of an executive officer of the other party to that effect; | |
• | the other party having performed or complied with its agreements and covenants in the U.S. Vision merger agreement in all material respects, and the receipt of a certificate of an executive officer of the other party to that effect; | |
• | the absence of any facts, events, changes, effects, developments, conditions or occurrences, since the date of the U.S. Vision merger agreement, that would reasonably be expected to have a material adverse effect on the other party; and | |
• | the delivery by the other party of a certificate from the Secretary of State of Delaware as to its good standing. |
• | the delivery by U.S. Vision of certain letters from its affiliates for purposes of Rule 145 of the Securities Act; and | |
• | the representations and warranties of the U.S. Vision stockholders being true and correct at and as of the effective time of the U.S. Vision merger as if they were made on that date, and the receipt of a certificate from each of the U.S. Vision stockholders to that effect. |
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• | the business, assets, financial condition or results of operations of the referenced company and its subsidiaries, taken as a whole; | |
• | the ability of the referenced company to perform its obligations under the U.S. Vision merger agreement; or | |
• | the ability of the referenced company to complete the U.S. Vision merger and related transactions. |
• | the economy in general in the U.S. or regulatory or political conditions in the U.S. in general, including acts of war or terrorism, which events, changes, effects, developments, conditions or occurrences do not disproportionately affect the referenced company relative to the other participants in the industry in which it operates; or | |
• | with respect to Refac, any change in Refac’s stock price or trading volume, in and of itself. |
Representations and Warranties |
• | corporate organization, standing and power; | |
• | subsidiaries; | |
• | capital structure; | |
• | authority, execution and delivery and enforceability; | |
• | absence of conflicts and required filings and consents; | |
• | financial statements and undisclosed liabilities; | |
• | the absence of certain changes or events since January 31, 2005; | |
• | information supplied for inclusion in this joint proxy statement/ prospectus; | |
• | litigation; | |
• | compliance with applicable laws; | |
• | tax matters; and | |
• | opinions of financial advisors. |
• | environmental matters; | |
• | intellectual property; | |
• | employee benefit plans; |
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• | labor and other employment matters; | |
• | material agreements; | |
• | real estate and other properties; | |
• | products liability; and | |
• | brokers used in connection with the U.S. Vision merger agreement. |
• | authorization of the U.S. Vision merger agreement; | |
• | ownership of U.S. Vision shares; and | |
• | waiver of appraisal rights under Delaware law. |
Conduct of Business Before Completion of the U.S. Vision Merger |
• | conduct its business only in the usual, regular and ordinary course in substantially the same manner as previously conducted; | |
• | use its commercially reasonable efforts to preserve intact its current business organization and keep available the services of its current officers and employees; and | |
• | use all commercially reasonable efforts to preserve its current relationships with its customers, suppliers, licensors, licensees, lessors, distributors and other persons with which it has business dealings in order that its goodwill and ongoing business will not be impaired at the time of the completion of the U.S. Vision merger. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly-owned subsidiary of U.S. Vision to that subsidiary’s security holders; | |
• | split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, other than pursuant to the terms of stock options and warrants outstanding as of the date of the U.S. Vision merger agreement or pursuant to the conversion of convertible debt outstanding as of the date of the U.S. Vision merger agreement; | |
• | purchase, redeem or otherwise acquire any shares of capital stock of U.S. Vision, or securities convertible into capital stock of U.S. Vision, other than pursuant to the terms of stock options and warrants outstanding as of the date of the U.S. Vision merger agreement or pursuant to the conversion of convertible debt outstanding as of the date of the U.S. Vision merger agreement; |
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• | issue, deliver, sell or grant any shares of its capital stock, or voting securities, or securities convertible into capital stock or voting securities, other than the issuance of U.S. Vision common stock pursuant to the terms of stock options and warrants outstanding as of the date of the U.S. Vision merger agreement; | |
• | amend or otherwise change its certificate of incorporation, by-laws or other organizational documents; | |
• | acquire or agree to acquire any equity interest in or material assets or business of any person, acquire any material assets, except purchases of inventory in the ordinary course of business consistent with past practice; | |
• | grant to any current or former employee, officer, director or independent contractor any loan or increase in compensation, benefits, perquisites or any bonus or award, or pay any bonus to any such person, except to the extent required under employment agreements in effect as of the date of the merger agreement or in the ordinary course of business consistent with past practice; | |
• | grant to any current or former employee, officer, director or independent contractor any increase in severance, change in control or termination pay or benefits, except to the extent required under any agreement in effect as of the date of the U.S. Vision merger agreement; | |
• | enter into any employment, loan, retention, consulting, indemnification, termination or similar agreement with any current or former employee, officer, director or independent contractor, except in the ordinary course of business consistent with past practice; | |
• | enter into any change of control, severance or similar agreement with any current or former employee, officer, director or independent contractor; | |
• | take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan, except in the ordinary course of business consistent with past practice; | |
• | amend, waive or otherwise modify the terms of any employee option; | |
• | establish, adopt, enter into, terminate or amend any collective bargaining agreement or benefit plan, except in the ordinary course of business consistent with past practice, or take any action to accelerate any rights or benefits or make any material determinations, under any collective bargaining agreement or benefit plan; | |
• | make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of U.S. Vision, other than as may have been required by a change in generally accepted accounting principles or any governmental entity; | |
• | sell, lease, license, transfer, pledge or otherwise dispose of or subject to any lien any properties or assets that have a fair market value, individually, in excess of $100,000 or, in the aggregate, in excess of $1,000,000; | |
• | other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date of the U.S. Vision merger agreement or any refinancing of the existing credit facility or line of credit that does not exceed the amount borrowable under the existing credit facility or line of credit (i) incur any indebtedness for borrowed money or guarantee the indebtedness of another person, (ii) issue or sell any debt securities or warrants or other rights to acquire any debt securities or (iii) guarantee any debt securities of another person; | |
• | make any loans, advances or capital contributions to, or investments in, any other person, other than to or in any wholly-owned subsidiary, individually in excess of $100,000 or in the aggregate in excess of $1,000,000; | |
• | make or agree to make any new capital expenditures, other than for emergency repairs necessary to avoid significant disruption to U.S. Vision’s business consistent with past practices; |
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• | make any material tax election or settle or compromise any material tax liability or refund, other than tax elections required by law; | |
• | cancel any indebtedness owed to it or waive any claims or rights of substantial value or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it is a party, except in the ordinary course of business consistent with past practice; | |
• | cancel, terminate, or adversely modify or amend any material contract of U.S. Vision, or waive, release, assign, settle or compromise any material rights or claims, or any material litigation or arbitration, except in the ordinary course of business consistent with past practice; | |
• | enter into any contract having a duration of more than one year and total payment obligations of U.S. Vision in excess of $1,000,000, other than contracts terminable within one year or the renewal, on substantially similar terms, of any contract existing on the date of the U.S. Vision merger agreement; or | |
• | authorize, commit or agree to take any of the actions above. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly-owned subsidiary of Refac to that subsidiary’s security holders; | |
• | split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, other than pursuant to the terms of stock options and warrants outstanding as of the date of the U.S. Vision merger agreement; | |
• | purchase, redeem or otherwise acquire any shares of capital stock of Refac, or securities convertible into capital stock of Refac, other than pursuant to the terms of stock options and warrants outstanding as of the date of the U.S. Vision merger agreement, or pursuant to the terms of the put option under the Agreement and Plan of Merger, dated August 19, 2002, among Palisade, Palisade Merger Corp. and Refac, as amended; | |
• | issue, deliver, sell or grant any shares of its capital stock or voting securities, or securities convertible into capital stock or voting securities, other than (i) pursuant to the terms of Refac’s stock options and warrants or the conversion of convertible debt in accordance with their present terms, in each case, outstanding as of the date of the U.S. Vision merger agreement, (ii) grants of Refac equity awards and stock options pursuant to its benefit plans and (iii) pursuant to the OptiCare merger agreement; | |
• | amend or otherwise change its charter or by-laws, other than pursuant to the charter amendment proposals; | |
• | acquire or agree to acquire any equity interest in or business of any person, or acquire or agree to acquire any material assets other than the acquisition of OptiCare pursuant to the OptiCare merger agreement; | |
• | sell, lease, license, transfer, pledge or otherwise dispose of or subject to any lien any properties or assets that have a fair market value, individually, in excess of $250,000 or, in the aggregate, in excess of $2,500,000; | |
• | other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date of the U.S. Vision merger agreement or any refinancing of the existing credit facility or line of credit that does not exceed the amount borrowable under the existing credit facility or line of credit (i) incur any indebtedness for borrowed money or guarantee the indebtedness of another person, (ii) issue or sell any |
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debt securities or warrants or other rights to acquire any debt securities or (iii) guarantee any debt securities of another person; | ||
• | cancel any indebtedness owed to it or waive any claims or rights of substantial value or waive the benefits of, or agreed to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it is a party, except in the ordinary course of business consistent with past practice; or | |
• | authorize, commit or agree to take any of the actions above. |
Advice of Changes |
Access to Information |
Regulatory Approvals |
• | obtaining all necessary actions or nonactions, waivers, consents and approvals from governmental entities and making all necessary registrations and filings and taking all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity; | |
• | obtaining all necessary consents, approvals or waivers from third parties; | |
• | defending any lawsuits or other legal proceedings challenging the U.S. Vision merger agreement or the completion of the U.S. Vision merger; and | |
• | executing and delivering any additional instruments necessary to complete the merger and other transactions contemplated by the U.S. Vision merger agreement. |
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Public Announcements |
U.S. Vision Stock Options and Warrants |
• | each stock option will be exercisable for that number of whole shares of Refac common stock equal to the product of the number of shares of U.S. Vision common stock that were issuable upon exercise of such stock option or warrant immediately prior to the effective time of the U.S. Vision merger multiplied by 0.4141, rounded to the nearest whole number of shares of Refac common stock; and | |
• | the per share exercise price for each share of Refac common stock issuable upon exercise of each stock option or warrant so converted will be equal to the quotient determined by dividing the exercise price per share of U.S. Vision common stock at which such stock option or warrant was exercisable immediately prior to the effective time of the U.S. Vision merger by 0.4141, rounded to the nearest whole cent. |
Indemnification |
Termination of the U.S. Vision Merger Agreement |
• | the U.S. Vision merger is not completed on or before April 30, 2006, except that this right to terminate the U.S. Vision merger agreement is not available to any party whose failure to fulfill any obligation under the U.S. Vision merger agreement has been the cause of, or results in, the failure of the U.S. Vision merger to occur on or before such date; or |
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• | any governmental entity issues an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the U.S. Vision merger, and the order, decree, ruling or other action has become final and nonappealable. |
Effect of Termination |
Amendments, Extensions and Waivers |
• | extend the time for the performance of any of the obligations or other acts of the other; | |
• | waive any inaccuracies in the representations and warranties of the other included in the U.S. Vision merger agreement or in any document delivered pursuant to the U.S. Vision merger agreement; or | |
• | waive compliance by the other with any of the agreements or conditions included in the U.S. Vision merger agreement. |
Fees and Expenses |
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Tax Treatment |
Date, Time and Place |
Purpose of the Refac Annual Meeting |
• | adopt and approve the Agreement and Plan of Merger, dated as of August 22, 2005, as amended, by and among Refac, OptiCare Merger Sub, OptiCare, and solely with respect to certain sections, each of Dr. Dean J. Yimoyines, Linda Yimoyines and Palisade, copies of which are attached as Annexes A and A.1 to this joint proxy statement/ prospectus, and to approve the merger contemplated thereby, including the issuance of shares of Refac common stock in the merger; | |
• | adopt and approve the Agreement and Plan of Merger, dated as of August 22, 2005, as amended, by and among Refac, USV Merger Sub, U.S. Vision, and the stockholders of U.S. Vision, copies of which are attached as Annexes B and B.1 to this joint proxy statement/ prospectus, and to approve the merger contemplated thereby, including the issuance of shares of Refac common stock in the merger; | |
• | approve an amendment and restatement of Refac’s charter to increase the number of authorized shares of Refac common stock from 20,000,000 to 25,000,000; | |
• | approve an amendment and restatement of Refac’s charter to de-classify the board of directors; | |
• | approve an amendment and restatement of Refac’s charter to change the company’s name to Refac Optical Group; | |
• | elect six directors to Refac’s board of directors; | |
• | amend the 2003 Stock Incentive Plan to increase the shares reserved for issuance from 500,000 to 1,250,000; and | |
• | transact any other business that may properly be brought before the meeting. |
Other Matters |
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Refac Record Date; Shares Entitled to Vote |
Quorum |
Votes Required |
Voting by Refac Directors and Executive Officers |
Voting of Proxies |
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Revocability of Proxies |
Proposal 1. | Adoption and Approval of the OptiCare Merger Agreement, as Amended, and OptiCare Merger, Including the Issuance of Shares in the OptiCare Merger |
Proposal 2. | Adoption and Approval of the U.S. Vision Merger Agreement, as Amended, and U.S. Vision Merger, Including the Issuance of Shares in the U.S. Vision Merger |
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Proposal 3. | Amendment and Restatement of Refac’s Charter to Increase the Number Shares of Authorized Refac Common Stock from 20,000,000 to 25,000,000 |
Proposal 4. | Amendment and Restatement of Refac’s Charter to Eliminate the Classified Board of Directors |
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Proposal 5. | Amendment and Restatement of Refac’s Charter to Change the Name of the Company to Refac Optical Group |
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Nominees for Election as Directors |
Class 3 |
MELVIN MESKIN —Mr. Meskin, age 61, became a director of Refac on February 28, 2003 and the non-executive Chairman of the Board on March 26, 2003. He was, until his retirement on December 31, 2001, Vice President-Finance-National Operations for Verizon, the combined Bell Atlantic/ GTE telecommunications company. Mr. Meskin joined New York Telephone in 1970 and held a variety of line and staff assignments with the company over a 31-year career. In 1994, he was named Vice President-Finance and treasurer for NYNEX Telecommunications. When Bell Atlantic and NYNEX merged, he was appointed Vice President-Finance and Comptroller of Bell Atlantic. He is a director of, and from 2002 to 2004, was a consultant to, OptiCare. | |
JEFFREY D. SERKES — Mr. Serkes, age 46, became a director of Refac on February 28, 2003. Since July 2003, he has been the Senior Vice President and Chief Financial Officer of Allegheny Energy, Inc. From June 2002 until he joined Allegheny Energy, Inc., he was principally engaged in real estate investment and development. From August 1994 to May 2002, Mr. Serkes held a variety of financial management positions for IBM, including: Vice President, Finance, Sales & Distribution from June 1999 to May 2002, Vice President and Treasurer from January 1995 to May 1999 and Assistant Treasurer from August 1994 to December 1994. Prior to joining IBM, Mr. Serkes held a variety of treasury management positions with RJR Nabisco, Inc. | |
DENNISON T. VERU — Mr. Veru, age 44, was elected to the Refac board on May 9, 2005 to fill the vacancy created when Mark S. Hoffman resigned. He is being nominated for the first time for election by stockholders at this annual meeting. Since March 2000, he has been the Executive Vice President andCo-Investment Officer of PCM, a private investment firm which is an affiliate of Palisade. In July 2004, he became of member of PCM. From November 1992 until December 1999, he served as President and Director of Research of Awad & Associates, a money management division of Raymond James Financial. Mr. Veru is also a director of OptiCare. |
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Class 1 |
CLARK A. JOHNSON — Mr. Johnson, age 73, has been a director of Refac since 2000. He has been the Chairman of PSS World Medical, Inc., a national distributor of medical equipment and supplies to physicians, hospitals, nursing homes, and diagnostic imaging facilities since October 2000. Mr. Johnson served as Chairman and Chief Executive Officer of Pier 1 Imports from March 1985 to June 1998 and is former Executive Vice President and Director of the Wickes Companies, Inc. He is a director of the following public companies: MetroMedia International Group, Neurologix, Inc., OptiCare and PSS World Medical, Inc. It is expected that Mr. Johnson will become the non-executive Chairman of Refac’s board of directors at the board meeting that will follow Refac’s annual meeting of stockholders. | |
MARK N. KAPLAN — Mr. Kaplan, age 75, has been a director of Refac since 1967. He is Of Counsel to Skadden, Arps, Slate, Meagher & Flom LLP and was a member of such law firm from 1979 to 1998. Mr. Kaplan also serves as a director of the following public companies: American Biltrite Inc., Autobytel, Inc., DRS Technologies, Inc., Congoleum Corporation and Volt Information Sciences, Inc. | |
JEFFREY A. COLE —Mr. Cole, age 63, is president of Cole Limited, a business consulting firm and was appointed Class 1 director on January 19, 2006. From 1984 to June 2003, he served as chairman, chief executive officer and director of Cole National, one of the world’s largest optical retailers. He remained on Cole National’s board until October 2004 when Cole National was acquired by Luxottica S.p.A. He is a member of the supervisory Board of Directors of Pearle Europe, B.V., a leading optical retailer in Europe. He has been a director of Hartmarx Corporation since 1990. | |
Election of the directors of Refac will require the affirmative vote of a plurality of the stockholders present in person or represented by proxy at the meeting and entitled to vote thereon. |
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Federal Income Tax Consequences |
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Board Recommendation |
Class 2 Directors Continuing in Office |
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DEAN J. YIMOYINES, M.D. — Dr. Yimoyines, age 58, has served as Chairman of the Board and Chief Executive Officer of OptiCare since August 13, 1999. Dr. Yimoyines was the Chief Executive Officer of OptiCare August 1999 to January 2005 and was appointed as the Interim Chief Executive Officer on December 5, 2005. Dr. Yimoyines also served as President of OptiCare from August 1999 to June 2002. Dr. Yimoyines is a founder of OptiCare Eye Health Centers, Inc. and has served as the Chairman, President and Chief Executive Officer of OptiCare Eye Health Centers, Inc. since 1985. Dr. Yimoyines graduated with distinction from the George Washington School of Medicine. He is a graduate of the OPM (Owner/ President Management) program at Harvard Business School and is a Fellow of the American Academy of Ophthalmology. | |
DAVID C. STONE — Mr. Stone, age 58, is a member of the Bar of the State of Michigan and has been a partner in the law firm of Bodman LLP since 2004. For the previous sixteen years, he was a principal in the law firm of Stone, Biber & O’Toole. Mr. Stone concentrates his practice in corporate and business law, including corporate governance, mergers and acquisitions, finance and estate planning. He is a director of U.S. Vision. | |
JOSEPH W. MARINO — Mr. Marino, age 66, is a private investor. He was the President and Chief Executive Officer of The Marco Group, Inc. an operator ofpost-secondary vocational schools from 1984 until November 1, 2004 and was Senior Vice President from November 1, 2004 until his retirement on July 1, 2005. He is a director of U.S. Vision and JM Financial Management Corp. | |
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Summary Compensation Table |
Securities | |||||||||||||||||
Annual Compensation | Underlying | ||||||||||||||||
Options | |||||||||||||||||
Name, Age and Position | Year | Salary | Bonus | (#) | |||||||||||||
Robert L. Tuchman, age 63 | 2005 | $ | 319,000 | $ | 1,002,062 | 100,000 | |||||||||||
Chief Executive Officer and General Counsel | 2004 | $ | 300,000 | $ | 400,000 | — | |||||||||||
2003 | $ | 300,000 | $ | 800,000 | 25,000 | ||||||||||||
J. David Pierson, age 59 | 2005 | $ | 187,000 | $ | 7,000 | 150,000 | |||||||||||
President and Chief Operating Officer | |||||||||||||||||
Raymond A. Cardonne, age 39 | 2005 | $ | 194,000 | $ | 250,515 | 50,000 | |||||||||||
Chief Executive Officer and General Counsel | 2004 | $ | 175,000 | — | — | ||||||||||||
2003 | $ | 175,000 | $ | 313,744 | 15,000 |
Option Grants and Exercises in Last Fiscal Year |
Percent of | Potential Realizable Value | |||||||||||||||||||||||
Number of | Total | at Assumed Annual Rates | ||||||||||||||||||||||
Securities | Options | of Stock Price Appreciation | ||||||||||||||||||||||
Underlying | Granted to | Exercise | for Option Term | |||||||||||||||||||||
Options | Employees | Price | Expiration | |||||||||||||||||||||
Name | Granted(1) | in 2005 | per Share | Date | 5% | 10% | ||||||||||||||||||
Robert L. Tuchman | 100,000 | 33.3 | % | $ | 4.12 | 4/1/2015 | $ | 886,595 | $ | 1,584,752 | ||||||||||||||
J. David Pierson | 150,000 | 50.0 | % | $ | 4.92 | 6/20/2010 | $ | 804,674 | $ | 1,161,094 | ||||||||||||||
Raymond A. Cardonne | 50,000 | 16.7 | % | $ | 4.12 | 4/1/2015 | $ | 443,298 | $ | 792,376 |
Number of Securities | ||||||||||||||||
Underlying | Value of Unexercised | |||||||||||||||
Unexercised Options | In-the-Money Options | |||||||||||||||
at Fiscal Year-End | at Fiscal Year-End | |||||||||||||||
Not | Not | |||||||||||||||
Name | Exercisable | Exercisable | Exercisable | Exercisable | ||||||||||||
Robert L. Tuchman | 78,333 | 66,666 | $ | 219,583 | $ | 276,667 | ||||||||||
J. David Pierson | 50,000 | 100,000 | $ | 167,500 | $ | 335,000 | ||||||||||
Raymond A. Cardonne, Jr. | 40,167 | 33,333 | $ | 128,728 | $ | 138,333 |
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Equity Compensation Plan Information |
Number of | ||||||||||||
Number of Securities to be | Weighted Average | Securities | ||||||||||
Issued Upon Exercise of | Exercise Price of | Remaining Available | ||||||||||
Plan Category | Outstanding Options | Outstanding Options | for Future Issuance | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by securityholders | 523,500 | $ | 5.75 | 5,000 | ||||||||
Equity compensation plans not approved by security holders(1) | 50,000 | $ | 4.92 | — | ||||||||
Total | 573,500 | $ | 5.68 | 5,000 | ||||||||
(1) | Refac granted to Cole Limited, Inc. (“CL”), options to purchase 50,000 shares of Refac common stock at a per share exercise price of $4.92, which is equal to the fair market value of Refac’s common stock on the date of the grant. Although these options were not issued pursuant to any option plan, they are governed by the same terms set forth in Refac’s 2003 Stock Incentive Plan. |
Amount and Nature | Percent of | Post-Merger | ||||||||||||||
of Beneficial | Class as of | Amount and Nature | ||||||||||||||
Ownership as of | February 2, | of Beneficial | Post-Merger | |||||||||||||
Name of Beneficial Owner | February 2, 2006 | 2006 | Ownership | Percent of Class | ||||||||||||
Palisade Capital Management, L.L.C.(1) | 6,306,387 | 91.04 | % | 15,804,896 | 87.66 | % | ||||||||||
Eugene K. Bolton(2) | 13,333 | * | 13,333 | * | ||||||||||||
Raymond A. Cardonne, Jr.(3) | 40,750 | * | 40,750 | * | ||||||||||||
Jeffrey A. Cole(4) | 100,000 | 1.43 | % | 100,000 | * | |||||||||||
Clark A. Johnson(5) | 22,000 | * | 36,443 | * | ||||||||||||
Mark N. Kaplan(6) | 24,565 | * | 24,565 | * | ||||||||||||
Melvin Meskin(7) | 40,000 | * | 52,272 | * | ||||||||||||
Mark S. Newman(8) | 13,334 | * | 27,022 | * | ||||||||||||
J. David Pierson(9) | 50,000 | * | 50,000 | * | ||||||||||||
Jeffrey D. Serkes(10) | 30,000 | * | 30,000 | * | ||||||||||||
Robert L. Tuchman(11) | 109,517 | 1.56 | % | 109,517 | * | |||||||||||
Dennison T. Veru(12) | 6,306,387 | 91.04 | % | 15,804,896 | 87.66 | % | ||||||||||
Officers, nominees and directors as a Group (11 persons)(13) | 6,749,886 | 92.69 | % | 16,288,798 | 88.49 | % |
* | Represents less than 1% of the outstanding shares of Refac common stock. |
(1) | Based upon the Schedule 13D filed with the SEC by Palisade and PCM, on September 1, 2005 such entities beneficially owned in the aggregate 6,306,387 shares of Refac common stock. PCM and Palisade are both located at One Bridge Plaza, Suite 695, Fort Lee, New Jersey 07024. Palisade is a private equity partnership managed by PCM, an investment advisory firm. Post-merger shares include |
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(i) 3,741,509 shares of Refac common stock expected to be received in the OptiCare merger, and (ii) 5,757,000 shares of Refac common stock expected to be received in the U.S. Vision merger. | |
(2) | Includes 13,334 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(3) | Includes 40,167 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(4) | Includes 50,000 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(5) | Includes 20,000 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. Post-merger shares include (i) 10,667 shares of Refac common stock expected to be received in the OptiCare merger and (ii) 3,776 shares of Refac common stock issuable upon exercise of options expected to be received in the OptiCare merger. |
(6) | Includes 20,000 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(7) | Includes 40,000 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. Post-merger shares include (i) 7,080 shares of Refac common stock expected to be received in the OptiCare merger and (ii) 5,192 shares of Refac common stock issuable upon exercise of options expected to be received in the OptiCare merger. |
(8) | Includes 13,334 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. Post-merger shares include options to acquire 13,688 shares of Refac common stock expected to be received in the OptiCare merger. |
(9) | Includes 50,000 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(10) | Includes 30,000 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(11) | Includes 78,333 shares of Refac common stock which may be acquired upon the exercise of options which are exercisable immediately. |
(12) | Includes 6,306,387 shares beneficially owned by PCM, of which Mr. Veru is a managing director. Post-merger shares include (i) 3,741,509 shares of Refac common stock expected to be received by PCM in the OptiCare merger, and (ii) 5,757,000 shares of Refac common stock expected to be received by PCM in the U.S. Vision merger. Mr. Veru disclaims ownership of such shares. |
(13) | Includes an aggregate of 338,501 shares of Refac common stock which such persons may acquire upon the exercise of options, which are exercisable immediately or within sixty days of the Refac record date, and 6,306,387 shares beneficially owned by PCM, of which Mr. Veru is an Executive Vice President and Co-Investment Officer. Mr. Veru disclaims beneficial ownership of such shares.Post-merger shares include (i) 3,759,256 shares of Refac common stock expected to be received by such persons in the OptiCare merger, (ii) 22,656 shares of Refac common stock issuable upon the exercise of options and warrants expected to be received by such persons in the OptiCare merger, and (iii) 5,757,000 shares of Refac common stock expected to be received by such persons in the U.S. Vision merger. |
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Consulting Agreement with Cole Limited, Inc. |
Objectives |
Employment Agreements |
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Components of Executive Compensation |
Deductibility of Compensation |
The Compensation Committee of the Board | |
Melvin Meskin, Chair | |
Clark A. Johnson | |
Dennison T. Veru | |
Compensation Committee Interlocks and Insider Participation |
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Comparison of Cumulative Total Stockholder Return |
Year Ended December 31, | ||||||||||||||||
February 28, | ||||||||||||||||
Description | 2003 | 2003 | 2004 | 2005 | ||||||||||||
Refac | 100.00 | 119.95 | 103.41 | 201.22 | ||||||||||||
Industry Index (SIC Code 6794) | 100.00 | 179.49 | 207.32 | 222.52 | ||||||||||||
American Stock Exchange Index | 100.00 | 135.31 | 154.94 | 170.88 |
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The Audit Committee of the Board | |
Jeffrey D. Serkes, Chair | |
Eugene K. Bolton | |
Mark S. Newman |
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Description | 2004 | 2003 | ||||||
Audit fees | $ | 110,000 | $ | 113,000 | ||||
Audit related fees | — | — | ||||||
Tax fees | 72,000 | 133,000 | ||||||
All other fees | — | — | ||||||
Total | $ | 182,000 | $ | 246,000 | ||||
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Date, Time and Place |
Purpose of the OptiCare Special Meeting |
• | adopt and approve the Agreement and Plan of Merger, dated as of August 22, 2005, as amended, by and among Refac, OptiCare Merger Sub, OptiCare, and solely with respect to certain sections, each of Dr. Dean J. Yimoyines, Linda Yimoyines and Palisade, copies of which are attached as Annexes A and A.1 to this joint proxy statement/ prospectus; such adoption will also constitute approval of the merger and other transactions contemplated by the merger agreement; and | |
• | transact any other business that may properly be brought before the meeting. |
Other Matters |
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OptiCare Record Date; Shares Outstanding and Entitled to Vote |
Quorum |
Votes Required |
Voting by OptiCare Directors and Executive Officers |
Voting of Proxies |
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Revocability of Proxies |
Solicitation of Proxies |
Proposals By OptiCare Stockholders |
Proposal 1. | Adoption and Approval of the OptiCare Merger Agreement, as Amended |
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Number of securities | ||||||||||||
remaining available for | ||||||||||||
future issuance under | ||||||||||||
equity compensation | ||||||||||||
Number of securities to be | Weighted-average | plans (excluding | ||||||||||
issued upon exercise of | exercise price of | securities reflected in | ||||||||||
outstanding options | outstanding options | column (a)) | ||||||||||
Plan category | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by stockholders(1) | 5,338,575 | $ | 0.93 | 2,671,216 | ||||||||
Equity compensation plans not approved by stockholders(2) | — | — | — | |||||||||
Total | 5,338,575 | $ | 0.93 | 2,671,216 | ||||||||
(1) | These plans consist of the 1999 Performance Stock Program, the Amended and Restated 1999 Employee Stock Purchase Plan, the 2000 Professional Employee Stock Purchase Plan and the Amended and Restated 2002 Stock Incentive Plan. |
(2) | OptiCare does not have any equity compensation plans that have not been approved by its stockholders. |
Dean J. Yimoyines, M.D. Chairman and Interim Chief Executive Officer | Mark S. Newman Director Chairman, President and Chief Executive Officer, DRS Technologies, Inc. | |
Richard L. Huber Director Chief Executive Officer, Norte Sur | Dennison T. Veru Director Executive Vice President and Co-Investment Officer, Palisade Capital Management, L.L.C. | |
Clark A. Johnson Director Chairman, PSS World Medical, Inc. | Gordon A. Bishop(1) President, Consumer Vision Division | |
Melvin Meskin Director Chairman, Refac | Jason M. Harrold President, Managed Vision Division |
(1) | Mr. Bishop has notified OptiCare that he will resign effective February 28, 2006. OptiCare has selected David Gaio to succeed Mr. Bishop as the President of the Consumer Vision Division. Mr. Gaio currently serves as an Executive Vice President for the Consumer Vision Division. During 2005, Mr. Gaio was responsible for the day-to-day operations of this division. |
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OptiCare Common | Refac Common Stock | ||||||||||||||||
Stock Beneficially | Beneficially Owned | ||||||||||||||||
Owned as of | After the | ||||||||||||||||
February 2, 2006 | OptiCare Merger(2) | ||||||||||||||||
Name of Beneficial Owner(1) | Number | Percent | Number | Percent | |||||||||||||
Palisade Concentrated Equity Partnership, L.P.(3) | 95,922,652 | 84.2 | % | 15,804,896 | 87.7 | % | |||||||||||
Dean J. Yimoyines, M.D., Chairman and Interim Chief | 8,784,334 | 7.6 | % | 356,001 | 2.0 | % | |||||||||||
Executive Officer(4) | |||||||||||||||||
Vincent S. Miceli, Corporate Controller and Chief Accounting Officer(5) | 5,000 | * | 236 | * | |||||||||||||
Gordon A. Bishop, President, Consumer Vision Division(6) | 203,000 | * | 9,582 | * | |||||||||||||
William A. Blaskiewicz, former Vice President and Chief Financial Officer(7) | 284,287 | * | 13,418 | * | |||||||||||||
Norman S. Drubner, Esq., former Director(8) | 644,489 | * | 30,420 | * | |||||||||||||
Jason M. Harrold, President, Managed Vision Division(9) | 237,729 | * | 11,221 | * | |||||||||||||
Dennison T. Veru, Director(10) | 95,922,652 | 84.2 | % | 15,804,896 | 87.7 | % | |||||||||||
Richard L. Huber, Director(11) | 320,000 | * | 15,104 | * | |||||||||||||
Clark A. Johnson, Director(12) | 306,000 | * | 36,443 | * | |||||||||||||
Melvin Meskin, Director(13) | 260,000 | * | 52,272 | * | |||||||||||||
Mark S. Newman, Director(14) | 290,000 | * | 27,022 | * | |||||||||||||
Christopher J. Walls, Esq., former Chief Executive Officer, President and General Counsel(15) | 815,000 | * | 38,468 | * | |||||||||||||
All executive officers and directors as a group — 12 persons | 108,072,491 | 91.6 | % | 16,286,341 | 90.3 | % |
* | Less than 1% |
(1) | As used in this table, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise, has or shares (a) the power to vote, or direct the voting of, such security or (b) investment power which includes the power to dispose, or to direct the disposition of, such security. In addition, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. Shares not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire them within 60 days upon the exercise of an option are treated as outstanding for purposes of determining beneficial ownership and the percent beneficially owned by such individual and for the executive officers and directors as a group. The percentage of outstanding OptiCare common stock set forth opposite the name of each stockholder has been determined in accordance with Securities and Exchange Commission Rule 13d-3(d)(1), without regard to OptiCare common stock acquirable within 60 days hereafter under options, warrants, and convertible securities beneficially owned by persons other than such stockholder, but includes shares of OptiCare common stock issuable upon conversion of all outstanding shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. |
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Each share of Series B Preferred Stock entitles the holder to one vote for each of the ten shares of OptiCare common stock into which it is convertible. Each share of Series C Preferred Stock entitles the holder to one vote for each 50 shares of OptiCare common stock into which it is convertible. Each share of Series D Preferred Stock entitles the holder to one vote for each 40 shares of OptiCare common stock into which it is convertible. | ||
(2) | The number of shares of Refac common stock includes shares owned prior to and issued as a result of both the OptiCare and U.S. Vision mergers. The number of shares of Refac common stock issued as a result of the OptiCare merger is calculated taking into effect only the vested portion of options and warrants whether or not such options or warrants arein-the-money. | |
(3) | OptiCare common stock beneficially owned by Palisade Concentrated Equity Partnership, L.P., or Palisade, consists of 19,375,000 shares of OptiCare common stock presently issued and outstanding; 46,283,852 shares of OptiCare common stock issuable upon conversion of Series B Preferred Stock; 20,162,800 shares of OptiCare common stock issuable upon conversion of Series C Preferred Stock; and 10,101,000 shares of OptiCare common stock issuable upon conversion of Series D Preferred Stock. Palisade ownership represents approximately 84% of the voting stock. The number of shares of Refac common stock beneficially owned by Palisade after the OptiCare merger (a) includes 6,306,387 shares of Refac common stock and 13,902,439 shares of U.S. Vision common stock beneficially owned by Palisade before the OptiCare merger and (b) is calculated based on the Series B Preferred Stock ceasing to increase in liquidation value as of June 30, 2005, per the OptiCare merger agreement. The address of Palisade is One Bridge Plaza, Suite 695, Fort Lee, NJ 07024. | |
(4) | Includes 180,000 shares of OptiCare common stock and 1,748,950 shares of OptiCare common stock issuable upon the exercise of outstanding options owned by Dr. Yimoyines. Also includes the following securities held by Linda Yimoyines, wife of Dr. Yimoyines: 374,925 shares of OptiCare common stock; 5,211,639 shares of OptiCare common stock issuable upon conversion of Series B Preferred Stock; 145,100 shares of OptiCare common stock issuable upon conversion of Series C Preferred Stock; and 1,123,720 shares of OptiCare common stock issuable upon conversion of Series D Preferred Stock. Dr. Yimoyines disclaims beneficial ownership of securities held by his wife. Dr. Yimoyines ownership represents approximately 0.2% of the voting stock and Ms. Yimoyines ownership represents approximately 6.0% of the voting stock. The number of shares of Refac common stock beneficially owned by Dr. Yimoyines after the OptiCare merger is calculated based on the Series B Preferred Stock ceasing to increase in liquidation value as of June 30, 2005, per the OptiCare merger agreement. Dr. Yimoyines was appointed Interim Chief Executive Officer of OptiCare effective December 5, 2005. | |
(5) | Consists of 5,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Miceli. | |
(6) | Includes 153,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Bishop. On November 11, 2005, OptiCare received the resignation of Mr. Bishop effective February 28, 2006. During 2005, David Gaio was responsible for the day-to-day operations of the Consumer Vision Division. | |
(7) | Consists of 284,287 shares of OptiCare common stock held by Mr. Blaskiewicz. Mr. Blaskiewicz resigned as OptiCare’s Vice President and Chief Financial Officer effective July 15, 2005. | |
(8) | Includes 350,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Drubner. On December 22, 2005, OptiCare received the resignation of Mr. Drubner effective December 31, 2005. | |
(9) | Includes 222,729 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Harrold. | |
(10) | OptiCare common stock beneficially owned by Mr. Veru consists of 19,375,000 shares of OptiCare common stock owned by Palisade; 46,283,852 shares of OptiCare common stock issuable upon conversion of Series B Preferred Stock owned by Palisade; 20,162,800 shares of OptiCare common stock issuable upon conversion of Series C Preferred Stock owned by Palisade; and 10,101,000 shares of OptiCare common stock issuable upon conversion of Series D Preferred Stock. The number of shares of |
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Refac common stock beneficially owned by Mr. Veru after the OptiCare merger (a) includes 6,306,387 shares of Refac common stock and 13,902,439 shares of U.S. Vision common stock beneficially owned by Mr. Veru before the OptiCare merger and (b) is calculated based on the Series B Preferred Stock ceasing to increase in liquidation value as of June 30, 2005, per the OptiCare merger agreement. Mr. Veru is a managing director of Palisade Capital Management, LLC, an affiliate of Palisade. |
(11) | Consists of 320,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Huber. |
(12) | Includes 80,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Johnson. The number of shares of Refac common stock beneficially owned by Mr. Johnson after the OptiCare merger includes 22,000 shares of Refac common stock beneficially owned by Mr. Johnson before the OptiCare merger. |
(13) | Includes 110,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Meskin. The number of shares of Refac common stock beneficially owned by Mr. Meskin after the OptiCare merger includes 40,000 shares of Refac common stock beneficially owned by Mr. Meskin before the OptiCare merger. |
(14) | Consists of 290,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Newman. The number of shares of Refac common stock beneficially owned by Mr. Newman after the OptiCare merger includes 13,334 shares of Refac common stock beneficially owned by Mr. Newman before the OptiCare merger. |
(15) | Consists of 70,000 shares of OptiCare common stock and 745,000 shares of OptiCare common stock issuable upon the exercise of outstanding options held by Mr. Walls. Mr. Walls resigned by mutual agreement with the OptiCare board of directors as OptiCare’s Chief Executive Officer, President and General Counsel effective December 5, 2005. |
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For the Years Ended | ||||||||||||
December 31, | ||||||||||||
Description | 2004 | 2003 | 2002 | |||||||||
Revenues from licensing-related activities | 90 | % | 98 | % | 32 | % | ||||||
Gains on sale of licensing rights | — | — | 68 | % | ||||||||
Consulting income | 10 | % | 2 | % | — | |||||||
Total | 100 | % | 100 | % | 100 | % |
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For the | For the | ||||||||||||||||
Three Months | Nine Months | ||||||||||||||||
Ended | Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
Description | 2005 | 2004 | 2005 | 2004 | |||||||||||||
Licensing-related activities | 98% | 90% | 97% | 90% | |||||||||||||
Related party consulting services | 2% | 10% | 3% | 10% | |||||||||||||
Total | 100% | 100% | 100% | 100% |
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September 30, | December 31, | ||||||||
Description | 2005 | 2004 | |||||||
Cash and cash equivalents | 1,089,000 | $ | 457,000 | ||||||
Available for sale securities | — | 1,000,000 | |||||||
Investments being held to maturity | 28,875,000 | 29,342,000 | |||||||
Total | 29,964,000 | $ | 30,799,000 | ||||||
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Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Contractual Obligations | Total | One Year | 1 - 3 Years | 3 - 5 Years | 5 Years | |||||||||||||||
Operating Lease Obligations | $ | 2,557,000 | $ | 610,000 | $ | 1,265,000 | $ | 682,000 | — | |||||||||||
Purchase Obligations(1) | $ | 67,000 | $ | 67,000 | — | — | — | |||||||||||||
Management Incentive Compensation(2) | $ | 421,000 | $ | 421,000 | — | — | — |
(1) | See Note 10 to the Notes to Unaudited Interim Condensed Financial Statements of Refac. |
(2) | See Note 9 to the Notes to Unaudited Interim Condensed Financial Statements of Refac. |
Description | 2004 | 2003 | 2002 | ||||||||||
Cash and cash equivalents | $ | 457,000 | $ | 799,000 | $ | 3,330,000 | |||||||
Available for sale securities | 1,000,000 | 1,000,000 | — | ||||||||||
Investments being held to maturity | 29,342,000 | 28,682,000 | 11,714,000 | ||||||||||
Total | $ | 30,799,000 | $ | 30,481,000 | $ | 15,044,000 | |||||||
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Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Contractual Obligations | Total | One Year | 1 - 3 Years | 3 - 5 Years | 5 Years | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating lease Obligations | $ | 2,946,000 | 592,000 | 1,222,000 | 1,132,000 | — | ||||||||||||||
Management Incentive Compensation (see Note 5B) | $ | 1,239,000 | 1,239,000 | — | — | — |
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• | The Managed Vision Division contracts with insurers, employer groups, managed care plans, HMOs and other third-party payers to manage claims payment and other administrative services of eye health benefits for contracting parties in fifteen states and to provide insurance coverage relating to certain eye care products and services. On January 31, 2006, OptiCare’s board of directors approved a plan to sell OptiCare’s managed vision business. Also on that date, OptiCare, Refac and a nationally recognized managed care provider entered into a non-binding letter of intent regarding the sale. OptiCare expects to complete the sale of its managed vision business by April 30, 2006. | |
• | The Consumer Vision Division sells retail optical products to consumers and owns and/or operates integrated eye health centers, professional optometric practices and surgical facilities in Connecticut. OptiCare also owns a manufacturing laboratory in Connecticut, in which prescription eyeglasses are fabricated and supplied to all of OptiCare’s Connecticut locations. Additionally, OptiCare’s lab manufacturing services are integrated into some of its Managed Vision programs that are administered in Connecticut. |
New Capital Structure |
• | Palisade, OptiCare’s majority stockholder, purchased, for approximately $4.0 million in cash, 252,525 shares of OptiCare’s Series D Preferred Stock, par value $0.001 per share, which are convertible into 10,101,000 shares of OptiCare common stock and Linda Yimoyines, the spouse of OptiCare’s Chairman and Interim Chief Executive Officer, purchased for approximately $445,000 in cash, 28,093 shares of OptiCare’s Series D Preferred Stock which are convertible into 1,123,720 shares of OptiCare common stock. Each holder of OptiCare’s Series D Preferred Stock is entitled to vote, on an as converted basis, on all matters with the holders of common stock and receive dividends equally and ratably with the holders of common stock in an amount equal to the dividends such holder would receive if it had converted its OptiCare Series D Preferred Stock into common stock on the date the dividends are declared. | |
• | OptiCare Acquisition Corp., OptiCare’s wholly-owned subsidiary, entered into an Asset Purchase Agreement with Wise Optical, LLC and AECC/ Pearlman Buying Group, LLC, both entities formed by Dean J. Yimoyines, M.D., OptiCare’s Interim Chief Executive Officer, and the current President and Chief Executive Officer of OptiCare’s medical affiliate, OptiCare P.C., and a current chairman of the OptiCare board of directors, pursuant to which OptiCare sold, effective as of December 31, 2004, substantially all of the assets and certain liabilities of the distribution division, which consisted of the |
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contact lens distributor, Wise Optical, and the Optical Buying Group, for an aggregate purchase price of $4,150,000, less a working capital adjustment of $575,000 and closing costs and other direct costs of $349,000. | ||
• | OptiCare, together with certain of its subsidiaries, entered into the Third Amendment to the Second Amended and Restated Revolving Credit, Term Loan and Security Agreement with CapitalSource, OptiCare’s senior lender. The Loan Amendment amends the terms of the Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of March 29, 2004, as amended by the Waiver and First Amendment to Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of August 16, 2004, and the Second Amendment to Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of August 27, 2004, to reduce the tangible net worth covenant for December 2004 and January 2005 from ($3,000,000) to ($6,500,000). Without this Amendment, OptiCare would have been in violation of the tangible net worth covenant at December 31, 2004. Under the revolving credit, term loan and security agreement, as amended; OptiCare must maintain a tangible net worth of at least ($3,000,000) after February 1, 2005. |
Overview |
Eye Care Services and Products |
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Managed Vision Services |
• | Positioning itself to contract for business directly with employer groups and other associations, thereby reaching another sector of the third-party payer market and broadening the base of its revenue stream; |
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• | Increasing its membership lives, which will enable it to offer cost advantages by directing volume to targeted markets, thereby increasing the value of its services to the practitioners who contract with it; and | |
• | Offering non-insurance related products, including Administrative Services Only (“ASO”) and Internal Revenue Code (“IRC”) Section 125 plans, with benefits that include the administration of well eye examinations and/or prescription optical products. |
• | Managed Care Vision Benefits — OptiCare administers vision benefits for health plans under capitation and fee-for-service arrangements. Benefits administered under these programs are for well vision, preventive exams and optical hardware in addition to medical and surgical eye care benefits. OptiCare assumes partial or full financial risk with respect to the majority of the enrollees for which it administers vision benefits. OptiCare has been administering benefits of this nature for more than ten years. | |
• | Insured Vision Plan — OptiCare provides insurance coverage for well vision, preventive examinations and optical hardware through Fidelity Security Life Insurance Company and through its captive insurance company, OptiCare Vision Insurance Company, Inc. | |
• | Section 125 Vision Plan — This vision benefit allows qualified groups and individuals to participate in vision programs for well vision, preventive examinations and optical hardware on a pre-tax basis. | |
• | ASO Vision Plan — OptiCare administers benefits on a fee basis for well vision, preventive examinations and optical hardware for qualified groups which are self-funded. |
• | Provider Contracting — Upon obtaining a managed care contract, OptiCare typically defines and/or develops a network of ophthalmologists, optometrists and opticians, facilities and anesthesiologists to provide the eye care services required under the contract. Generally, OptiCare attempts to contract first with eye care professionals with whom it has an existing contractual relationship. Additionally, OptiCare seeks to enter into contracts with independent eye care professionals as well as to work in conjunction with its partners to build networks that meet set access standards. | |
• | Provider Credentialing — Under several contracts, OptiCare “credentials” eye care professionals (i.e., establish to both its, and the third-party payer’s satisfaction, the credentials of such professionals) who provide the eye care services specified under the contract to the third-party payer’s members. In addition to its network enrollment process, OptiCare credentials when requested by the health plan or as required by state law consistent with the standards established by those plans or applicable law. In those instances, OptiCare undertakes a review process on each prospective eye care professional, which |
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includes obtaining a copy of the state license and Drug Enforcement Agency number, verifying hospital privileges, liability insurance and board certification and reviewing work history. | ||
• | In conducting its credentialing reviews, OptiCare applies the national standards — set by the National Committee for Quality Assurance — by which health plans are measured for compliance with quality assurance initiatives. OptiCare was re-audited for continued accreditation in late 2004 and subsequently re-awarded accreditation in January 2005 through December 2006 as a Credentialing Verification Organization by the National Committee for Quality Assurance for all of the eleven elements tested. Eye care professionals, who are credentialed for OptiCare’s panels, are currently re-credentialed every three years. | |
• | Claims Payment — For most contracted payers, OptiCare pays claims to its network providers for services rendered in the fulfillment of vision benefits for members. OptiCare also has Internet capabilities for authorizations (if needed), direct claim submission and claim tracking. Additionally, OptiCare accepts claims via electronic data interchange, enabling providers to send claims through their own practice management software. OptiCare believes these enhancements have continued to help lower its cost of operations, improve service and speed the payment cycle to its providers. | |
• | Systems — To enhance its claims payment administration, OptiCare utilizes proprietary systems, which allow it to strictly follow Center for Medicare and Medicaid Services’ rules for payment of eye care claims. In addition, OptiCare has posted on-line its clinical criteria for treatment of every eye care condition for which it provides covered services. OptiCare’s providers can use its secure web server to check these criteria and to inform themselves of new or modified criteria as changes occur. | |
• | Utilization Management — OptiCare’s Utilization Management staff ensures that established clinical criteria are followed in provision of services and benefits to members. Using proprietary clinical criteria for eye care procedures that are based on Center for Medicare and Medicaid Services’ local carrier policy and the American Academy of Ophthalmology’s guidelines; OptiCare works with eye care professionals to determine appropriate eye care treatments. While these practices are intended to reduce unnecessary procedures – and therefore costs — there can be no assurance that such costs may not become excessive. | |
• | Plan Member Relations — Service representatives answer plan members’ questions relating to their benefits and the status of their claims and help resolve complaints relating to their eye care treatment. OptiCare believes that its issue-resolution structure is unique to the industry and increases plan members’ satisfaction with their eye care benefits. | |
• | Provider Relations — OptiCare continuously educates providers concerning the various plan benefits being administered. In addition, with the assistance of OptiCare’s staff, providers may obtain any required authorizations prior to performing certain eye care procedures. | |
• | Quality Management — OptiCare’s Quality Management Department tracks complaints and concerns and conducts surveys for members, providers and payers to ensure that all parties are satisfied with the services and the service levels provided. Department personnel also recommend, or take, steps to address conditions from which valid complaints have arisen. In addition, OptiCare performs retrospective-outcome studies and other quality assessment studies on the care rendered by its network of providers. | |
• | Claim Data Analysis — OptiCare’s financial analysts review claim and other data to provide feedback to management and to the insurance companies and other payers with which it has claims payment contracts concerning its performance, enabling management to maintain profitability while providing excellent service. |
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Legal and Compliance |
Licensing Requirements. Many states impose licensure requirements on health insurance companies, HMOs and other companies that engage in the business of insurance, pre-paid health care or defined managed care activities. In some states, these laws do not apply to the discounted fee-for-service or capitation programs between insurers and provider networks contracting with those insurers. | |
Certain states, however, such as Texas, where OptiCare works on a capitated basis, require that the risk-bearing entity (e.g., the managed care company) be licensed for capitated arrangements unless that entity qualifies under certain exceptions (such as that it be a professional corporation which is owned by eye care providers). OptiCare does not qualify for such an exception. As a risk-bearing entity, OptiCare is currently licensed and operates its capitated arrangements through a wholly-owned, single-service HMO subsidiary, AECC Total Vision Health Plan of Texas, Inc. | |
If OptiCare is required to become licensed under the laws of states other than Texas for its Managed Care Vision Benefits products, the licensure process could be lengthy and time consuming. In states where OptiCare already is conducting such business, unless the regulatory authority permits it to continue to operate while the licensure process is progressing, OptiCare could suffer losses of revenue that would result in material adverse changes in its business while the licensing process is pending. In addition, licensing requirements may mandate strict financial and other requirements OptiCare may not immediately be able to meet and which, if waivers or other exemptions are not available, might cause OptiCare to withdraw from those states or otherwise cause a material adverse change to its business, operations or financial position. The same risks may not apply to the same degree for OptiCare’sDirect-to-Employer suite of products due to its relationship with Fidelity Security Life Insurance Company, which is licensed to write life and health insurance in all 50 states (except in New York, where it may write only reinsurance). Once licensed, OptiCare would be subject to regulatory compliance and required to report to the licensing authority. | |
Some states require licensing for companies providing administrative services in connection with a managed care business. OptiCare currently holds third-party administrator licenses in Florida, North Carolina, South Carolina and Texas. OptiCare may seek licenses in the states which they are required for eye care networks, if needed. In the event such licensure is required and OptiCare is unable to obtain a license, OptiCare may be forced to withdraw from that state, which could have a material adverse effect on its business. | |
OptiCare has a Preferred Provider Network license in Connecticut, an Organized Delivery System Certification in New Jersey and an Individual Practice Association in New York. | |
The licensing requirements described can also serve as a barrier to entry to competition in states where such licensure is required. | |
Regulation of OptiCare’s Captive Insurance Subsidiary. OptiCare’s Captive Insurance Company subsidiary, OptiCare Vision Insurance Company is a licensed Captive Insurance Company domiciled in South Carolina. It is subject to regulation and supervision by the South Carolina Department of Insurance, which requires OptiCare to maintain $500,000 of unencumbered capital and surplus via a letter of credit. | |
Regulation of OptiCare’s HMO Subsidiary. OptiCare’s Texas HMO subsidiary, AECC Total Vision Health Plan of Texas, Inc., is a licensed single service HMO. It is subject to regulation and supervision by the Texas Department of Insurance, which has broad administrative powers relating to standards of solvency, minimum capital and surplus requirements, maintenance of required reserves, payment of dividends, statutory accounting and reporting practices and other financial and operational matters. The Texas Department of Insurance requires that stipulated amounts ofpaid-in-capital and surplus be maintained at all times. OptiCare’s Texas HMO subsidiary is required by terms of an Order of the Commissioner of Insurance, dated August 12, 1999, as modified in November 2003, to maintain a |
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minimum net worth of $500,000. Dividends payable to OptiCare by its Texas HMO subsidiary are generally limited to the lesser of 10% of statutory-basis capital and surplus or net income of the preceding year excluding realized capital gains. In addition, OptiCare’s agreement with the Texas Department of Insurance required OptiCare to pledge investments of $250,000 at December 31, 2004 and December 31, 2003. | |
Direct-to-Employer Insurance Products. Fidelity Security Life Insurance Company, a carrier licensed to write life and health insurance in all 50 states (in New York, reinsurance only), underwrites OptiCare’s insured product. Fidelity has been rated A- (Excellent), based on an analysis of financial position and operating performance by A.M. Best Company, an independent analyst of the insurance industry. OptiCare’s insured product, offered through Fidelity, is reinsured through OptiCare Vision Insurance Company, Inc., its wholly-owned subsidiary, which is domiciled in South Carolina and has received approval to operate as a captive insurance company from the South Carolina Department of Insurance. | |
Preferred Provider Networks. OptiCare previously registered as a preferred provider network (“PPN”) with the Connecticut Office of Health Care Access. In 2003, this regulatory function was transferred to the Department of Insurance and the definition of a PPN was revised to focus on entities assuming financial risk. OptiCare has received approval from the Department of Insurance for a PPN in Connecticut. Many states have provider network licensure registration requirements and many of these mandate that an organization have specified financial reserves or insolvency protections and provide financial reporting and disclosures to state officials. OptiCare’s activities over time in Connecticut and/or in various other states may subject it to regulation under such arrangements, and its ability to comply with these requirements or to secure the necessary regulatory approval cannot be assured. | |
“Any Willing Provider” Laws. Some states have adopted, and others are considering, legislation that requires managed care networks to include any qualified and licensed provider who is willing to abide by the terms of the network’s contracts. These laws could limit OptiCare’s ability to develop effective managed care networks in such states. However, OptiCare believes that if such legislation were adopted that the unique medical management and eye care claim data analysis services it offers would provide great value to its clients. There are currently no states in which OptiCare operates its managed care business that have “any willing provider” requirements, although some states do impose certain anti-discrimination requirements for ophthalmologists and optometrists. Further, with the introduction of itsDirect-to-Employer suite of products, OptiCare has added business lines which would not be directly affected by the adoption of “any willing provider” requirements in the states in which it does such business. | |
Health Insurance Portability and Accountability Act — Administrative Simplification. The Health Insurance Portability and Accountability Act (“HIPAA”), passed in 1996 by Congress, requires the Department of Health and Human Services (“HHS”) to enact standards for information sharing, security and the use, disclosure and confidentiality of patients’ protected health information. The HHS, in its administrative simplification provisions, has published three sets of final regulations implementing healthcare transactions and privacy standards under HIPAA. These regulations apply to what are termed “covered entities” (i.e., health plan, health care clearinghouse and healthcare provider) and, under terms of the regulations, in certain instances OptiCare may be a covered entity and in other instances OptiCare may be classified as a “business associate” of an independent covered entity. In addition, state laws may place additional limitations on the use or disclosure of patients’ information. | |
The first set of final regulations requires covered entities to use uniform standards, including data reporting, formatting and coding, for common healthcare transactions. The Standards for Electronic Transactions Final Rule was published in August 2000 and became effective in October 2003. OptiCare implemented the appropriate compliance initiatives, including systems enhancements, for the electronic transaction and code set requirements and believes it is in compliance with this regulation. | |
The second set of final regulations imposes new standards relating to the privacy of individually identifiable health information. The Standards for Privacy and Individually Identifiable Health Informa- |
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tion Final Rule was published in December 2000 and became effective in April 2001 with a compliance date of April 2003. These standards require covered entities to comply with rules governing the use and disclosure of protected health information. The standards also require covered entities to enter into certain contractual provisions with any business associate to whom individually identifiable information is disclosed. OptiCare implemented appropriate compliance initiatives, including systems enhancements, training and administrative efforts, required to be compliant with the HIPAA Privacy Regulations and believes it is in compliance with this regulation. | |
A third set of regulations under HIPAA, the Final Rule for Security Standards, was published in February 2003 with a compliance date of April 2005. The Final Rule establishes minimum security requirements for covered entities to protect health information in electronic form. In some cases, OptiCare will also have to comply with applicable state regulations regarding privacy and medical information. OptiCare has created a security plan that includes administrative, technical and physical security safeguards to ensure its adherence to the regulations by the compliance date. While OptiCare will incur costs to become compliant with the HIPAA regulations, OptiCare believes this will not have a significant overall impact on its results of operations. OptiCare will continue to monitor new developments under HIPAA and the regulations and pronouncements issued thereunder to ensure compliance. | |
In addition to its administrative simplification provisions, HIPAA also imposes criminal penalties for fraud against any healthcare benefit program, for theft or embezzlement involving healthcare and for false statements in connection with the payment of any health benefits. These HIPAA fraud and abuse provisions apply not only to federal programs, but also to private health benefit programs. HIPAA also broadened the authority of HHS’s Office of Inspector General, to exclude participants from federal healthcare programs. Although OptiCare does not know of any current violations of the fraud and abuse provisions of HIPAA, if it were found to be in violation of these provisions, the government could seek penalties against it including exclusion from participation in government payer programs. Significant fines could cause liquidity problems for OptiCare and adversely affect its results of operations. | |
Interpretation and Implications. Many of the laws described provide for civil and criminal penalties and have been subject to limited judicial and regulatory interpretation. They are enforced by regulatory agencies that are vested with broad discretion in interpreting their meaning. OptiCare’s agreements and activities have not been examined by federal or state authorities under these laws and regulations. There can be no assurance that a review of OptiCare’s business arrangements will not result in determinations that adversely affect OptiCare’s operations or that certain material agreements between OptiCare and eye care providers or third-party payers will not be held invalid or unenforceable. | |
In addition, some of these laws and their interpretation vary from state to state. The regulatory framework of certain jurisdictions may limit OptiCare’s expansion into, or ability to continue operations within, such jurisdictions if it is unable to modify its operational structure to conform to such a regulatory framework. Any limitation on OptiCare’s ability to continue operating in the manner in which it has operated in the past could have an adverse effect on its business, financial condition and results of operations. |
Competition |
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Description |
Strategy |
Market Position |
Customers |
Products and Services |
Professional Optometric Practices |
Surgical Centers |
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Manufacturing Laboratory |
Legal and Compliance |
Surgical Facility Regulations. OptiCare’s licensed ophthalmic outpatient surgical facility in Waterbury, Connecticut is subject to the terms of Certificate of Need approvals from the Office of Health Care Access and licensure under the provisions of the Connecticut Public Health Code. The facility also is a participating provider under the federal Medicare and Connecticut Medicaid programs and has provider agreements with various commercial and governmental third-party payers. Violation of any of the terms and conditions of the Certificate of Need approvals and the Connecticut Public Health Code license governing the facility’s operation could result in fines or other sanctions against the facility and its operators, including OptiCare being enjoined or precluded from further operation of the facility. Failure to adhere to the terms of participation for the Medicare or Medicaid programs or a violation of billing or other requirements for the public and private third-party payment programs governing the facility could result in civil or criminal sanctions against the facility and its operators, refund obligations or claims denials and/or termination or exclusion from participation in Medicare, Medicaid or other payer programs. The structure of relationships involving the facility and clinicians providing services in conjunction with the facility also is subject to federal fraud and abuse statutes (including the anti-kickback statute) and related state and federal authorities. | |
Excimer Laser Regulation. Medical devices, including the excimer laser used in OptiCare’s Danbury, Connecticut laser surgery center, are subject to regulation by the U.S. Food and Drug Administration (“FDA”). Failure to comply with applicable FDA requirements could subject OptiCare, its affiliated providers or laser manufacturers to enforcement action, product seizures, recalls, withdrawal of approvals and civil and criminal penalties. Further, failure to comply with regulatory requirements could result in a limitation on, or prohibition of, OptiCare’s use of excimer lasers. Currently, the FDA |
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recognizes that physicians may, in their medical judgment, determine that a particular FDA approved laser is appropriate to use for a particular procedure, even if such use has not been evaluated by the FDA. The FDA’s policy on such non-FDA approved use is that it falls under the practice of medicine and is not within the jurisdiction of the FDA. If the FDA was to adversely change its policy with regard to non-FDA approved uses, or take any other adverse regulatory action, it could have a detrimental effect on OptiCare’s use of excimer lasers. | |
Regulation of Laser Vision Marketing. The marketing and promotion of laser correction and other vision correction surgery procedures in the U.S. is subject to regulation by the FDA and the Federal Trade Commission (“FTC”). The FDA and FTC have released a joint communiqué on the requirements for marketing these procedures in compliance with the laws administered by both agencies. The FTC staff also issued more detailed staff guidance on the marketing and promotion of these procedures. It has been monitoring marketing activities in this area through a non-public inquiry to identify activities that may require further FTC attention. The FDA has traditionally taken the position that the promotion and advertising of lasers by manufacturers and physicians should be limited to the uses approved by the FDA. Although the FDA does not prevent non-approved uses of excimer lasers, the FDA reserves the right to regulate advertising and promotion of non-FDA-approved uses. | |
Corporate Practice of Ophthalmology and Optometry. The laws of a number of states prohibit corporations that are not owned entirely by eye care professionals from: |
• | Employing eye care professionals; | |
• | Receiving for their own account reimbursements from third-party payers for health care services rendered by licensed professionals; | |
• | Controlling clinical decision-making; or | |
• | Engaging in other activities that constitute the practice of ophthalmology or optometry. |
To comply with these requirements, OptiCare: |
• | Performs only non-professional services; | |
• | Contracts with its professional affiliate (which is owned by a licensed ophthalmologist), which in turn employs or contracts with licensed ophthalmologists or optometrists to provide professional services to patients; | |
• | Does not represent to the public or customers that it provides professional eye care services (which is done by the professional affiliate); | |
• | Does not exercise influence or control the professional practices or clinical judgments of eye care practitioners employed by the professional affiliate; and | |
• | Only dispenses prescription ophthalmic products under the sole supervision of the employees of the professional affiliate. |
OptiCare’s agreement with its professional affiliate specifically provides that all decisions required by law to be made by licensed ophthalmologists or optometrists shall be made only by such licensed persons, and that OptiCare shall not engage in any services or activities which would constitute the practice of ophthalmology or optometry. If health care regulations and their interpretations change in the future, OptiCare may have to revise the terms of such agreement to comply with regulatory changes. | |
Prohibitions of Certain Referrals. The Omnibus Budget Reconciliation Act of 1993 includes a provision that significantly expands the scope of the Ethics in Patient Referral Act, also known as the “Stark Law.” The provisions of the Stark Law originally prohibited a physician from referring a Medicare or Medicaid patient to any entity for the provision of clinical laboratory services if the physician or a family member of the physician had an ownership interest in or compensation relationship with the entity. Revisions to the Stark Law since 1993 prohibit a referral to an entity in which the physician or a family member has a prohibited ownership interest or compensation relationship if the referral is for any of a list of |
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“designated health services,” which includes “prosthetic devices.” Under federal authority and the standards imposed by various state Medicaid programs, eyeglasses and contact lenses for patients who have undergone certain ophthalmic procedures would be considered prosthetic devices covered by the Stark Law and regulations. The Stark regulations provide that the prohibition of referrals for these types of eyewear does not apply if the arrangement between the physician and the eyewear seller conforms to the Medicare and Medicaid anti-kickback statute (42 USC Section 1320a-7b), referred to as the Anti-Kickback Statute, and other regulatory requirements. There can be no assurance that future interpretations of such laws and future regulations promulgated thereunder will not affect OptiCare’s existing relationship with its professional affiliate. | |
State Fee-Splitting and Anti-Kickback Laws. Most states have laws which prohibit the paying or receiving of any remuneration, direct or indirect, that is intended to induce referrals for health care products or services and prohibit “fee-splitting” by health care professionals with any party except other health care professionals in the same professional corporation or practice association. In most cases, these laws apply to the paying of a fee to another person or entity for referring a patient or otherwise generating business, and do not prohibit payment of reasonable compensation for facilities and services other than the generation of business, even if the payment is based on a percentage of the revenues of the professional practice. In addition, to the extent OptiCare is engaged in the direct delivery of vision care services in a jurisdiction it has to comply with those statutes. There is no express statute on this specific subject in Connecticut. | |
Federal Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for the referral of “federal health care program” patients, or in return for the purchase, lease or order of any item or service that is covered by a “federal health care program.” A “federal health care program” includes Medicare, Medicaid, TRICARE, and certain other state programs funded by the federal government, among others. Pursuant to this law, the federal government has pursued a policy of increased scrutiny of transactions among health care providers in an effort to reduce potential fraud and abuse relating to government health care costs. The Anti-Kickback Statute provides criminal penalties for individuals or entities participating in federal health care programs who knowingly and willfully offer, pay, solicit or receive remuneration in order to induce referrals for items or services reimbursed under such programs. In addition to federal criminal penalties, the Anti-Kickback Statute provides for civil monetary penalties and exclusion of violators from participation in federal health care programs. A violation of the Anti-Kickback Statute requires the existence of all of these elements: (i) the offer, payment, solicitation or receipt of remuneration; (ii) the intent to induce referrals; (iii) the ability of the parties to make or influence referrals of patients; (iv) the provision of services that are reimbursable under any federal health care program; and (v) patient coverage under any federal health care program. | |
To OptiCare’s knowledge, there have been no case law decisions regarding service agreements similar to that which it has with its professional affiliate that would indicate that such agreements violate the Anti-Kickback Statute. Because of the breadth of the Anti-Kickback Statute and the government’s active enforcement thereof, there can be no assurance, however, that future interpretations of such laws will not require modification of OptiCare’s existing relationship with its professional affiliate. If OptiCare’s services agreement is ever determined to be in violation of the Anti-Kickback Statute, it is likely that there would be a material adverse impact on its business, financial condition and results of operation. | |
Advertising Restrictions. Many states have laws that prohibit licensed eye care professionals from using advertising that includes any name other than their own, or from advertising in any manner that is likely to mislead a person to believe that a non-licensed professional is eligible to be engaged in the delivery of eye care services. Advertising is prohibited if it is undertaken in a manner that is deemed inappropriate for a professional or likely to mislead. There are regulatory requirements in Connecticut delineating certain specific advertising requirements with which OptiCare must comply. |
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Additionally, the Federal Trade Commission Act prohibits false and deceptive advertising. The FTC and FDA prohibit advertising or promotion of non-FDA approved uses of laser systems. Although non-FDA approved uses of a device are deemed to be within the medical discretion of a physician, promotion of non-FDA approved uses is prohibited. Both the FTC and FDA require that advertising or promotional statements be limited to laser applications that have been reviewed by the FDA. OptiCare’s services agreement with its professional affiliate provides that all advertising shall conform to these requirements, but there can be no assurance that the interpretation of the applicable laws or OptiCare’s advertising will not inhibit it or result in legal violations that could have a material adverse effect on OptiCare’s business, financial condition or results of operation. | |
Health Insurance Portability and Accountability Act — Administrative Simplification. This federal statute and its regulations, discussed above in “— Managed Vision Division” is applicable to the Consumer Vision Division as well. | |
Interpretation and Implications. The laws described above provide for civil and criminal penalties and have been subject to limited judicial and regulatory interpretation. They are enforced by regulatory agencies that are vested with broad discretion in interpreting their meaning. OptiCare’s agreements and activities have not been examined by federal or state authorities under these laws and regulations. There can be no assurance that review of OptiCare’s business arrangements will not result in determinations that adversely affect its operations or that certain material agreements between it and eye care providers or third-party payers will not be held invalid and unenforceable. Any limitation on OptiCare’s ability to continue operating in the manner in which it has operated in the past could have an adverse effect on OptiCare’s business, financial condition and results of operations. | |
In addition, these types of laws and their interpretation vary from state to state. The regulatory framework of certain jurisdictions may limit OptiCare’s expansion into such jurisdictions if it is unable to modify its operational structure to conform to such regulatory framework. |
Competition |
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Three Months Ended September 30, 2005 Compared to the Three Months Ended September 30, 2004 |
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Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September 30, 2004 |
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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 |
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Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 |
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Services Revenue |
Medical Claims Expense |
Goodwill |
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Income Taxes |
Liquidity |
Contractual Obligations | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | |||||||||||||||||||||
Debt | $ | 332 | $ | 1,475 | $ | 8,549 | $ | — | $ | — | $ | — | $ | 10,356 | ||||||||||||||
Operating leases | 2,572 | 2,486 | 2,275 | 1,885 | 1,504 | 10,062 | 20,784 | |||||||||||||||||||||
Capital leases | 11 | 13 | 6 | — | — | — | 30 | |||||||||||||||||||||
$ | 2,915 | $ | 3,974 | $ | 10,830 | $ | 1,885 | $ | 1,504 | $ | 10,062 | $ | 31,170 | |||||||||||||||
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2005 | 2004 | Change | |||||||||||
(In millions) | |||||||||||||
Cash and cash equivalents | $ | 2.1 | $ | 3.0 | $ | (0.9 | ) | ||||||
Cash provided by (used in): | |||||||||||||
Operating activities | (0.6 | ) | 3.4 | (4.0 | ) | ||||||||
Investing activities | 2.8 | 0.3 | 2.5 | ||||||||||
Financing activities | (2.3 | ) | (2.4 | ) | 0.1 |
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The CapitalSource Loan and Security Agreement |
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(i) increased the term loan by $0.3 million and extend the maturity date of the term loan from January 25, 2004 to January 25, 2006, | |
(ii) extended the maturity date of the revolving credit facility from January 25, 2005 to January 25, 2006, | |
(iii) permanently increased the advance rate on eligible receivables of Wise Optical from 80% to 85%, | |
(iv) temporarily increased the advance rate on eligible inventory of Wise Optical from 50% to 55% through March 31, 2004, | |
(v) provided access to a $0.7 million temporary over-advance bearing interest at prime plus 51/2%, which was repaid by March 1, 2004, and was guaranteed by Palisade, | |
(vi) through March 31, 2004, waived the non-compliance with the minimum fixed charge ratio covenant, and | |
(vii) changed the net worth covenant from ($27) million to tangible net worth of ($10) million. |
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The Refac Loan Agreement |
OptiCare Series B Preferred Stock |
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OptiCare Series C Preferred Stock |
OptiCare Series D Preferred Stock |
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Merchandise Selection. |
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Full Customer Service |
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Location and Layout. |
Number of | ||||
State | Stores | |||
United States | ||||
Alabama | 8 | |||
Alaska | 1 | |||
Arizona | 7 | |||
Arkansas | 10 | |||
California | 48 | |||
Colorado | 6 | |||
Connecticut | 6 | |||
Delaware | 2 | |||
Florida | 41 | |||
Georgia | 14 | |||
Idaho | 2 | |||
Illinois | 33 | |||
Indiana | 13 | |||
Iowa | 2 |
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Number of | ||||
State | Stores | |||
Kansas | 2 | |||
Kentucky | 9 | |||
Louisiana | 6 | |||
Maine | 6 | |||
Maryland | 13 | |||
Massachusetts | 1 | |||
Michigan | 25 | |||
Minnesota | 13 | |||
Mississippi | 2 | |||
Missouri | 11 | |||
Montana | 3 | |||
Nebraska | 2 | |||
Nevada | 2 | |||
New Hampshire | 8 | |||
New Jersey | 14 | |||
New Mexico | 2 | |||
New York | 18 | |||
North Carolina | 7 | |||
North Dakota | 6 | |||
Ohio | 24 | |||
Oregon | 3 | |||
Pennsylvania | 41 | |||
South Carolina | 3 | |||
South Dakota | 2 | |||
Tennessee | 7 | |||
Texas | 29 | |||
Utah | 3 | |||
Vermont | 1 | |||
Virginia | 12 | |||
Washington | 10 | |||
West Virginia | 3 | |||
Wisconsin | 12 | |||
Wyoming | 2 | |||
Canada | ||||
Province | ||||
Alberta | 6 | |||
British Columbia | 4 | |||
Manitoba | 2 | |||
Ontario | 11 | |||
Quebec | 6 | |||
Saskatchewan | 1 |
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Three Months | Nine Months | ||||||||||||||||
Ended | Ended | ||||||||||||||||
October 31, | October 31, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Cost of sales | 31.5 | 30.6 | 31.5 | 31.1 | |||||||||||||
Gross profit | 68.5 | 69.4 | 68.5 | 68.9 | |||||||||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 64.2 | 63.0 | 62.0 | 62.7 | |||||||||||||
Depreciation and amortization | 3.9 | 4.0 | 3.7 | 4.1 | |||||||||||||
Operating income (loss) | 0.4 | 2.4 | 2.8 | 2.1 | |||||||||||||
Interest expense, net | 1.2 | 1.7 | 1.2 | 1.7 | |||||||||||||
Income (loss) before income tax provision and discontinued operations | (0.8 | ) | 0.7 | 1.6 | 0.4 | ||||||||||||
Income tax provision | 0.1 | 0.0 | 0.0 | 0.0 | |||||||||||||
Income (loss) from continuing operations | (0.9 | ) | 0.7 | 1.6 | 0.4 | ||||||||||||
Loss from discontinued operations (net of tax) | (0.2 | ) | (0.9 | ) | (0.1 | ) | (0.8 | ) | |||||||||
Net income (loss) | (1.1 | )% | (0.2 | )% | 1.5 | % | (0.4 | )% | |||||||||
Three Months Ended October 31, 2005 Compared to Three Months Ended October 31, 2004 |
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Nine Months Ended October 31, 2005 Compared to Nine Months Ended October 31, 2004 |
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Fiscal Year Ended | |||||||||||||
January 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | |||||||
Cost of sales | 31.3 | 30.8 | 30.7 | ||||||||||
Gross profit | 68.7 | 69.2 | 69.3 | ||||||||||
Operating expenses: | |||||||||||||
Selling, general and administrative | 62.3 | 64.8 | 65.1 | ||||||||||
Other charges | 0.0 | .8 | 1.1 | ||||||||||
Depreciation and amortization | 4.0 | 4.1 | 4.6 | ||||||||||
Operating income (loss) | 2.4 | (0.5 | ) | (1.5 | ) | ||||||||
Interest expense, net | 1.6 | 2.3 | 1.1 | ||||||||||
Income (loss) before income tax provision and discontinued operations | 0.8 | (2.8 | ) | (2.6 | ) | ||||||||
Income tax provision | 0.0 | 0.0 | 0.0 | ||||||||||
Net income (loss) before discontinued operations | 0.8 | (2.8 | ) | (2.6 | ) | ||||||||
Loss from discontinued operations (net of tax) | (1.2 | ) | (0.7 | ) | (1.3 | ) | |||||||
Net income (loss) | (0.4 | )% | (3.5 | )% | (3.9 | )% | |||||||
Fiscal 2004 Compared to Fiscal 2003 |
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Fiscal 2003 Compared to Fiscal 2002 |
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Fiscal 2004 Quarter Ended | Fiscal 2003 | ||||||||||||||||||||||||||||||||||||
Sixty Two | |||||||||||||||||||||||||||||||||||||
Thirty Days | Days | ||||||||||||||||||||||||||||||||||||
Three | Ended | Ended | Three | Three | |||||||||||||||||||||||||||||||||
Months | May 30, | July 31, | Months | Months | |||||||||||||||||||||||||||||||||
Ended | 2003 | 2003 | Ended | Ended | |||||||||||||||||||||||||||||||||
April 30, | July 31, | Oct. 31, | Jan. 31, | April 30, | (Predecessor | (Successor | Oct. 31, | Jan. 31, | |||||||||||||||||||||||||||||
2004 | 2004 | 2004 | 2005 | 2003 | Period) | Period) | 2003 | 2004 | |||||||||||||||||||||||||||||
Net sales | $ | 33,299 | $ | 30,192 | $ | 31,551 | $ | 32,984 | $ | 31,195 | $ | 9,893 | $ | 19,260 | $ | 31,173 | $ | 27,690 | |||||||||||||||||||
Gross profit | 23,165 | 20,376 | 21,898 | 22,510 | 21,685 | 6,821 | 13,390 | 21,699 | 18,840 | ||||||||||||||||||||||||||||
% of net sales | 69.6 | % | 67.5 | % | 69.4 | % | 68.2 | % | 69.5 | % | 68.9 | % | 69.5 | % | 69.6 | % | 68.0 | % | |||||||||||||||||||
Operating income (loss) | $ | 1,824 | $ | (596 | ) | $ | 737 | $ | 1,118 | $ | 1,412 | $ | (484 | ) | $ | 50 | $ | (690 | ) | $ | (1,000 | ) | |||||||||||||||
Income (loss) from continuing operations | $ | 1,273 | $ | (1,132 | ) | $ | 209 | $ | 618 | $ | 649 | $ | (738 | ) | $ | (370 | ) | $ | (1,350 | ) | $ | (1,589 | ) | ||||||||||||||
Loss from discontinued operations | (159 | ) | (339 | ) | (281 | ) | (720 | ) | (178 | ) | (49 | ) | (88 | ) | (236 | ) | (273 | ) | |||||||||||||||||||
Net income (loss) | $ | 1,114 | $ | (1,471 | ) | $ | (72 | ) | $ | (102 | ) | $ | 471 | $ | (787 | ) | $ | (458 | ) | $ | (1,586 | ) | $ | (1,862 | ) | ||||||||||||
Basic and diluted earnings (loss) per share: | |||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 0.09 | $ | (0.08 | ) | $ | 0.01 | $ | 0.04 | $ | 0.08 | $ | (0.09 | ) | $ | (0.03 | ) | $ | (0.12 | ) | $ | (0.12 | ) | ||||||||||||||
Net income (loss) | $ | 0.08 | $ | (0.10 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.06 | $ | (0.10 | ) | $ | (0.04 | ) | $ | (0.14 | ) | $ | (0.15 | ) |
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Fiscal Year Ended January 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
(Dollars in thousands) | |||||||||||||
Expenditure category: | |||||||||||||
Lab Equipment | $ | 691 | $ | 522 | $ | 534 | |||||||
Information Systems | 688 | 1,470 | 1,240 | ||||||||||
Store maintenance | 474 | 447 | 689 | ||||||||||
New Stores | 63 | 241 | 110 | ||||||||||
Other | 69 | 105 | 54 | ||||||||||
Total Capital Expenditures | $ | 1,985 | $ | 2,785 | $ | 2,627 | |||||||
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Payments Due by Period | ||||||||||||||||||||
Less | More | |||||||||||||||||||
Than | 1 to 3 | 3 to 5 | Than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
Long-term debt obligations:(1) | ||||||||||||||||||||
Senior Term Loan | 6,402 | 4,225 | 2,177 | — | — | |||||||||||||||
Revolving Line of Credit | 11,433 | — | 11,433 | — | — | |||||||||||||||
Vendor Subordinated Notes | 10,000 | — | 10,000 | — | — | |||||||||||||||
Other | 3,896 | 719 | 560 | 590 | 2,027 | |||||||||||||||
Total | 31,731 | 4,944 | 24,170 | 590 | 2,027 | |||||||||||||||
Capital lease obligations | 813 | 431 | 308 | 74 | — | |||||||||||||||
Operating lease obligations | 863 | 389 | 321 | 153 | — | |||||||||||||||
Total future payments on contractual obligations | 33,407 | 5,764 | 24,799 | 817 | 2,027 | |||||||||||||||
(1) | Does not include interest that would have been payable on outstanding long-term debt obligations. |
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Opticare | |||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | |||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(15) | Adjustments | Combined | Adjustments | Combined | |||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,089 | $ | 2,142 | $ | 1,713 | $ | 4,944 | $ | 4,944 | |||||||||||||||||||
Royalties and accounts receivable, net | 296 | 2,122 | 8,294 | 10,712 | 10,712 | ||||||||||||||||||||||||
Notes receivable — current portion | 29 | 29 | 29 | ||||||||||||||||||||||||||
Investments being held to maturity | 28,875 | 28,875 | 28,875 | ||||||||||||||||||||||||||
Inventories, net | — | 1,808 | 19,006 | 20,814 | 20,814 | ||||||||||||||||||||||||
Prepaid expenses and other current assets | 502 | 750 | 441 | 1,693 | 1,693 | ||||||||||||||||||||||||
Restricted cash and investments being held to maturity | 5,260 | 5,260 | 5,260 | ||||||||||||||||||||||||||
Total current assets | 36,051 | 6,822 | 29,454 | — | 72,327 | — | 72,327 | ||||||||||||||||||||||
Property and equipment, net | 610 | 2,084 | 32,026 | 34,720 | 34,720 | ||||||||||||||||||||||||
Licensed department agreements | 11,481 | 11,481 | 2,402 | (9),(10) | 13,883 | ||||||||||||||||||||||||
Managed Care Contracts | 4,239 | (1),(2) | 4,239 | 4,239 | |||||||||||||||||||||||||
Managed Care Software | 287 | (1),(2) | 287 | 287 | |||||||||||||||||||||||||
HSO contracts | — | (1),(2) | — | — | |||||||||||||||||||||||||
Goodwill | 16,888 | 5,547 | (1) | 22,435 | 1,350 | (9),(10) | 23,785 | ||||||||||||||||||||||
Other intangibles, net | 985 | 985 | 985 | ||||||||||||||||||||||||||
Notes receivable, less current portion | 1,085 | 712 | (1,000 | )(8) | 797 | 797 | |||||||||||||||||||||||
Deferred income taxes | 439 | 439 | 439 | ||||||||||||||||||||||||||
Restricted cash | 1,639 | 1,639 | 1,639 | ||||||||||||||||||||||||||
Deferred debt issuance costs, net | 270 | 270 | 270 | ||||||||||||||||||||||||||
Other assets | 23 | 764 | 427 | 1,214 | 1,214 | ||||||||||||||||||||||||
Total assets | $ | 38,208 | $ | 30,164 | $ | 73,388 | $ | 9,073 | $ | 150,833 | $ | 3,752 | $ | 154,585 | |||||||||||||||
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Opticare | |||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | |||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(15) | Adjustments | Combined | Adjustments | Combined | |||||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||
Accounts payable | $ | 38 | $ | 1,028 | $ | 6,428 | $ | 7,494 | $ | 7,494 | |||||||||||||||||||
Accrued expenses | 870 | 1,587 | 5,162 | 7,619 | 7,619 | ||||||||||||||||||||||||
Accrued salaries and related expenses | 2,290 | 2,095 | 4,385 | 4,385 | |||||||||||||||||||||||||
Claims payable and claims IBNR | 2,153 | 2,153 | 2,153 | ||||||||||||||||||||||||||
Customer deposits | 211 | 4,260 | 4,471 | 4,471 | |||||||||||||||||||||||||
Deferred revenue | 81 | 81 | 81 | ||||||||||||||||||||||||||
Deferred incentive compensation | 421 | 421 | 421 | ||||||||||||||||||||||||||
Current portion of long-term debt | 2,519 | 4,398 | (1,000 | )(8) | 5,917 | 5,917 | |||||||||||||||||||||||
Current portion of capital lease obligations | 54 | 477 | 531 | 531 | |||||||||||||||||||||||||
Other current liabilities | 92 | 686 | 778 | 778 | |||||||||||||||||||||||||
Total current liabilities | 1,502 | 10,528 | 22,820 | (1,000 | ) | 33,850 | — | 33,850 | |||||||||||||||||||||
Long-term debt, net of current portion | 898 | 2,925 | 3,823 | 3,823 | |||||||||||||||||||||||||
Capital lease obligations net of current portion | 115 | 795 | 910 | 910 | |||||||||||||||||||||||||
Revolving line of credit | 10,047 | 10,047 | 10,047 | ||||||||||||||||||||||||||
Subordinated vendor debt | 10,000 | 10,000 | 10,000 | ||||||||||||||||||||||||||
Other long-term liabilities | 352 | 352 | 352 | ||||||||||||||||||||||||||
Minority Interest | 7,204 | (3),(5) | 7,204 | (7,204 | )(9) | — | |||||||||||||||||||||||
Temporary capital | 5,260 | 6,929 | (878 | )(3),(7) | 11,311 | (6,051 | )(9) | 5,260 | |||||||||||||||||||||
Preferred stock | 1 | 1 | (1 | )(9) | — | ||||||||||||||||||||||||
Common stock | 7 | 31 | 15 | (13 | )(3),(5) | 40 | (22 | )(9) | 18 | ||||||||||||||||||||
Additional paid-in capital | 22,955 | 83,051 | 29,614 | (32,339 | )(1),(3),(5),(7) | 103,281 | 67,124 | (9),(10) | 170,405 | ||||||||||||||||||||
Unearned compensation | (135 | ) | (135 | ) | (175 | )(10) | (310 | ) | |||||||||||||||||||||
Retained earnings (accumulated deficit) | 9,262 | (71,741 | ) | (2,828 | ) | 36,099 | (1),(2),(3),(5) | (29,208 | ) | (49,919 | )(9) | (79,127 | ) | ||||||||||||||||
Treasury stock | (306 | ) | (306 | ) | (306 | ) | |||||||||||||||||||||||
Receivable from issuance of common stock | (337 | ) | (337 | ) | (337 | ) | |||||||||||||||||||||||
Total stockholders’ equity | 31,446 | 11,342 | 26,801 | 3,747 | 73,336 | 17,007 | 90,343 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 38,208 | $ | 30,164 | $ | 73,388 | $ | 9,073 | $ | 150,833 | $ | 3,752 | $ | 154,585 | |||||||||||||||
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Opticare | ||||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(15) | Adjustments | Combined | Adjustments | Combined | ||||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||||||||
Managed vision | $ | 19,439 | $ | 19,439 | $ | 19,439 | ||||||||||||||||||||||||
Product sales | 8,837 | 107,785 | 116,622 | 116,622 | ||||||||||||||||||||||||||
Other services | 15,088 | 15,088 | 15,088 | |||||||||||||||||||||||||||
Licensing-related activities | 2,289 | 2,289 | 2,289 | |||||||||||||||||||||||||||
Related party consulting services and other | 65 | 848 | 913 | 913 | ||||||||||||||||||||||||||
Total revenues | 2,354 | 44,212 | 107,785 | — | 154,351 | — | 154,351 | |||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Medical claims expense | 14,216 | 14,216 | 14,216 | |||||||||||||||||||||||||||
Cost of product sales | 3,108 | 33,933 | 37,041 | 37,041 | ||||||||||||||||||||||||||
Cost of services | 5,730 | 5,730 | 5,730 | |||||||||||||||||||||||||||
Licensing-related activities | 90 | 90 | 90 | |||||||||||||||||||||||||||
Selling, general and administrative | 2,798 | 18,724 | 66,833 | 88,355 | (1,255 | )(11),(12) | 87,100 | |||||||||||||||||||||||
Depreciation and amortization | 833 | 4,013 | 838 | (2) | 5,684 | 5,684 | ||||||||||||||||||||||||
Total operating expenses | 2,888 | 42,611 | 104,779 | 838 | 151,116 | (1,255 | ) | 149,861 | ||||||||||||||||||||||
Operating income (loss) | (534 | ) | 1,601 | 3,006 | (838 | ) | 3,235 | 1,255 | 4,490 | |||||||||||||||||||||
Other income (expenses): | ||||||||||||||||||||||||||||||
Dividends and interest | 746 | (10 | )(8) | 736 | 736 | |||||||||||||||||||||||||
Interest expense | (553 | ) | (1,264 | ) | 10 | (8) | (1,807 | ) | (1,807 | ) | ||||||||||||||||||||
Other | (179 | ) | (179 | ) | (179 | ) | ||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and minority interest | 33 | 1,048 | 1,742 | (838 | ) | 1,985 | 1,255 | 3,240 | ||||||||||||||||||||||
Income tax expense | 219 | 50 | 48 | 317 | 317 | |||||||||||||||||||||||||
Minority interest | 195 | (4),(6) | 195 | (195 | )(13),(14) | — | ||||||||||||||||||||||||
Income (loss) from continuing operations | (186 | ) | 998 | 1,694 | (1,033 | ) | 1,474 | 1,450 | 2,923 | |||||||||||||||||||||
Discontinued operations: | ||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes and minority interest | 920 | (86 | ) | (136 | )(4),(6) | 698 | 136 | (13),(14) | 834 | |||||||||||||||||||||
Net income (loss) | $ | (186 | ) | $ | 1,918 | $ | 1,608 | $ | (1,169 | ) | $ | 2,171 | $ | 1,586 | $ | 3,757 | ||||||||||||||
Basic and diluted earnings per share: | ||||||||||||||||||||||||||||||
From continuing operations | $ | 0.16 | ||||||||||||||||||||||||||||
From discontinued operations | $ | 0.05 | ||||||||||||||||||||||||||||
Total | $ | 0.21 | ||||||||||||||||||||||||||||
Basic weighted average shares outstanding | 18,101,746 | |||||||||||||||||||||||||||||
Diluted weighted average shares outstanding | 18,219,879 | |||||||||||||||||||||||||||||
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Opticare | |||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | |||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(12) | Adjustments | Combined | Adjustments(7) | Combined | |||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 457 | $ | 2,228 | $ | 1,613 | $ | 4,298 | $ | 4,298 | |||||||||||||||||||
Royalties and accounts receivable, net | 286 | 2,164 | 8,435 | 10,885 | 10,885 | ||||||||||||||||||||||||
Notes receivable — current portion | 64 | 82 | 146 | 146 | |||||||||||||||||||||||||
Investments being held to maturity | 29,342 | 29,342 | 29,342 | ||||||||||||||||||||||||||
Inventories, net | 1,851 | 17,447 | 19,298 | 19,298 | |||||||||||||||||||||||||
Income taxes receivable | 23 | 23 | 23 | ||||||||||||||||||||||||||
Prepaid expenses and other current assets | 803 | 599 | 404 | 1,806 | 1,806 | ||||||||||||||||||||||||
Restricted cash and investments being held to maturity | 5,416 | 5,416 | 5,416 | ||||||||||||||||||||||||||
Assets held for sale | 7,894 | 7,894 | 7,894 | ||||||||||||||||||||||||||
Total current assets | 36,391 | 14,818 | 27,899 | — | 79,108 | — | 79,108 | ||||||||||||||||||||||
Property and equipment, net | 747 | 2,628 | 33,049 | 36,424 | 36,424 | ||||||||||||||||||||||||
Licensed department agreements | 11,481 | 11,481 | 11,481 | ||||||||||||||||||||||||||
Managed Care Contracts | 4,727 | (1),(2) | 4,727 | $ | 4,727 | ||||||||||||||||||||||||
Managed Care Software | 437 | (1),(2) | 437 | 437 | |||||||||||||||||||||||||
HSO Contracts | 159 | (1),(2) | 159 | 159 | |||||||||||||||||||||||||
Goodwill | 16,663 | 804 | (1),(3) | 17,467 | 17,467 | ||||||||||||||||||||||||
Other intangibles, net | 1,068 | 1,068 | 1,068 | ||||||||||||||||||||||||||
Available for sale securities | 1,000 | 1,000 | 1,000 | ||||||||||||||||||||||||||
Notes receivable, less current portion | 141 | 734 | 875 | 875 | |||||||||||||||||||||||||
Deferred income taxes | 489 | 489 | 489 | ||||||||||||||||||||||||||
Restricted cash | 1,413 | 1,413 | 1,413 | ||||||||||||||||||||||||||
Assets held for sale, non-current | 1,150 | — | (1),(3) | 1,150 | 1,150 | ||||||||||||||||||||||||
Deferred debt issuance costs, net | 342 | 342 | 342 | ||||||||||||||||||||||||||
Other assets | 998 | 449 | 1,447 | 1,447 | |||||||||||||||||||||||||
Total assets | $ | 38,768 | $ | 39,814 | $ | 72,878 | $ | 6,127 | $ | 157,587 | $ | — | $ | 157,587 | |||||||||||||||
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Opticare | |||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | |||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(12) | Adjustments | Combined | Adjustments(7) | Combined | |||||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||
Accounts payable | $ | 685 | $ | 2,727 | $ | 5,466 | $ | 8,878 | $ | 8,878 | |||||||||||||||||||
Accrued expenses | 1,874 | 5,609 | 7,483 | 7,483 | |||||||||||||||||||||||||
Accrued salaries and related expenses | 2,743 | 1,741 | 4,484 | 4,484 | |||||||||||||||||||||||||
Claims payable and claims IBNR | 1,897 | 1,897 | 1,897 | ||||||||||||||||||||||||||
Customer deposits | 223 | 2,944 | 3,167 | 3,167 | |||||||||||||||||||||||||
Deferred revenue | 142 | 142 | 142 | ||||||||||||||||||||||||||
Deferred incentive compensation | 1,239 | 1,239 | 1,239 | ||||||||||||||||||||||||||
Current portion of long-term debt | 332 | 4,944 | 5,276 | 5,276 | |||||||||||||||||||||||||
Current portion of capital lease obligations | 11 | 344 | 355 | 355 | |||||||||||||||||||||||||
Liabilities of held for sale businesses | 5,683 | 5,683 | 5,683 | ||||||||||||||||||||||||||
Other current liabilities | 89 | 896 | 985 | 985 | |||||||||||||||||||||||||
Total current liabilities | 2,155 | 16,386 | 21,048 | — | 39,589 | — | 39,589 | ||||||||||||||||||||||
Long-term debt, net of current portion | 10,024 | 5,354 | 15,378 | 15,378 | |||||||||||||||||||||||||
Capital lease obligations net of current portion | 19 | 351 | 370 | 370 | |||||||||||||||||||||||||
Revolving line of credit | 11,433 | 11,433 | 11,433 | ||||||||||||||||||||||||||
Subordinated vendor debt | 10,000 | 10,000 | 10,000 | ||||||||||||||||||||||||||
Other long-term liabilities | 1,476 | 1,476 | 1,476 | ||||||||||||||||||||||||||
Minority Interest | 5,151 | (4),(6) | 5,151 | 5,151 | |||||||||||||||||||||||||
Temporary capital | 5,416 | 6,344 | (642 | )(4) | 11,118 | (5,702 | )(8) | 5,416 | |||||||||||||||||||||
Preferred stock | 1 | 1 | (1 | )(8) | — | ||||||||||||||||||||||||
Common stock | 7 | 31 | 15 | (13 | )(4),(6) | 40 | (24 | )(8) | 16 | ||||||||||||||||||||
Additional paid-in capital | 22,238 | 79,192 | 29,114 | (36,854 | )(1),(4),(6) | 93,690 | 5,727 | (8) | 99,417 | ||||||||||||||||||||
Retained earnings (accumulated deficit) | 9,448 | (73,659 | ) | (4,437 | ) | 38,485 | (1),(2),(3),(4),(6) | (30,163 | ) | (30,163 | ) | ||||||||||||||||||
Treasury stock | (159 | ) | (159 | ) | (159 | ) | |||||||||||||||||||||||
Receivable from issuance of common stock | (337 | ) | (337 | ) | (337 | ) | |||||||||||||||||||||||
Total stockholders’ equity | 31,197 | 5,565 | 24,692 | 1,618 | 63,072 | 5,702 | 68,774 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 38,768 | $ | 39,814 | $ | 72,878 | $ | 6,127 | $ | 157,587 | $ | — | $ | 157,587 | |||||||||||||||
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Opticare | ||||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(12) | Adjustments | Combined | Adjustments | Combined | ||||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||||||||
Managed vision | $ | 25,495 | $ | 25,495 | $ | 25,495 | ||||||||||||||||||||||||
Product sales | 11,580 | 128,026 | 139,606 | 139,606 | ||||||||||||||||||||||||||
Other services | 19,907 | 19,907 | 19,907 | |||||||||||||||||||||||||||
Licensing-related activities | 1,609 | 1,609 | 1,609 | |||||||||||||||||||||||||||
Related party consulting services and other | 170 | 1,921 | 2,091 | 2,091 | ||||||||||||||||||||||||||
Total revenues | 1,779 | 58,903 | 128,026 | — | 188,708 | — | 188,708 | |||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Medical claims expense | 19,156 | 19,156 | 19,156 | |||||||||||||||||||||||||||
Cost of product sales | 4,128 | 40,077 | 44,205 | 44,205 | ||||||||||||||||||||||||||
Cost of services | 8,322 | 8,322 | 8,322 | |||||||||||||||||||||||||||
Licensing-related activities | 124 | 124 | 124 | |||||||||||||||||||||||||||
Selling, general and administrative | 2,606 | 25,053 | 79,733 | 107,392 | 172 | (9) | 107,564 | |||||||||||||||||||||||
Depreciation and amortization | 965 | 5,174 | 2,188 | (2) | 8,327 | 8,327 | ||||||||||||||||||||||||
Goodwill impairment | 1,325 | (3) | 1,325 | 1,325 | ||||||||||||||||||||||||||
Total operating expenses | 2,730 | 57,624 | 124,984 | 3,513 | 188,851 | 172 | 189,023 | |||||||||||||||||||||||
Operating income (loss) | (951 | ) | 1,279 | 3,042 | (3,513 | ) | (143 | ) | (172 | ) | (315 | ) | ||||||||||||||||||
Other income (expenses): | ||||||||||||||||||||||||||||||
Dividends and interest | 582 | 582 | 582 | |||||||||||||||||||||||||||
Interest expense | (1,190 | ) | (2,115 | ) | (3,305 | ) | (3,305 | ) | ||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and minority interest | (369 | ) | 89 | 927 | (3,513 | ) | (2,866 | ) | (172 | ) | (3,038 | ) | ||||||||||||||||||
Income tax (benefit) expense | (130 | ) | 51 | (41 | ) | (120 | ) | (120 | ) | |||||||||||||||||||||
Minority interest | (520 | )(5),(7) | (520 | ) | 520 | (10)(11) | — | |||||||||||||||||||||||
Income (loss) from continuing operations | (239 | ) | 38 | 968 | (2,993 | ) | (2,226 | ) | (692 | ) | (2,918 | ) | ||||||||||||||||||
Discontinued operations: | ||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes and minority interest | (3,973 | ) | (1,499 | ) | 748 | (5),(7) | (4,724 | ) | (748 | )(10),(11) | (5,472 | ) | ||||||||||||||||||
Gain (loss) on disposal of discontinued operations, net of income taxes and minority interest | 14 | (4,405 | ) | (2,037 | )(3),(5) | (6,428 | ) | (1,283 | )(10) | (7,711 | ) | |||||||||||||||||||
Income (loss) from discontinued operations | 14 | (8,378 | ) | (1,499 | ) | (1,289 | ) | (11,152 | ) | (2,031) | (13,183 | ) | ||||||||||||||||||
Net loss | $ | (225 | ) | $ | (8,340 | ) | $ | (531 | ) | $ | (4,282 | ) | $ | (13,378 | ) | $ | (2,723) | $ | (16,101 | ) | ||||||||||
Basic and diluted loss per share: | ||||||||||||||||||||||||||||||
From continuing operations | $ | (0.17 | ) | |||||||||||||||||||||||||||
From discontinued operations | $ | (0.79 | ) | |||||||||||||||||||||||||||
Total | $ | (0.96 | ) | |||||||||||||||||||||||||||
Basic and diluted weighted average shares outstanding | 16,695,757 | |||||||||||||||||||||||||||||
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Opticare | |||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | |||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(10) | Adjustments | Combined | Adjustments | Combined | |||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 799 | $ | 1,695 | $ | 678 | $ | 3,172 | $ | 3,172 | |||||||||||||||||||
Royalties and accounts receivable, net | 478 | 2,044 | 9,242 | 11,764 | 11,764 | ||||||||||||||||||||||||
Notes receivable — current portion | 302 | 105 | 407 | 407 | |||||||||||||||||||||||||
Investments being held to maturity | 28,682 | 28,682 | 28,682 | ||||||||||||||||||||||||||
Inventories, net | 1,773 | 17,536 | 19,309 | 19,309 | |||||||||||||||||||||||||
Income taxes receivable | 636 | 636 | 636 | ||||||||||||||||||||||||||
Prepaid expenses and other current assets | 899 | 354 | 334 | 1,587 | 1,587 | ||||||||||||||||||||||||
Assets held for sale | 11,578 | 11,578 | 11,578 | ||||||||||||||||||||||||||
Total current assets | 31,796 | 17,549 | 27,790 | — | 77,135 | — | 77,135 | ||||||||||||||||||||||
Property and equipment, net | 777 | 2,761 | 36,083 | 39,621 | 39,621 | ||||||||||||||||||||||||
Licensed department agreements | 11,481 | 11,481 | 11,481 | ||||||||||||||||||||||||||
Managed Care Contracts | 5,377 | (1),(2) | 5,377 | 5,377 | |||||||||||||||||||||||||
Managed Care Software | 635 | (1),(2) | 635 | 635 | |||||||||||||||||||||||||
HSO Contracts | 1,499 | (1),(2) | 1,499 | 1,499 | |||||||||||||||||||||||||
Goodwill | 16,565 | 2,129 | (1) | 18,694 | 18,694 | ||||||||||||||||||||||||
Other intangibles, net | 1,179 | 1,179 | 1,179 | ||||||||||||||||||||||||||
Available for sale securities | 1,000 | 1,000 | 1,000 | ||||||||||||||||||||||||||
Notes receivable, less current portion | 205 | 791 | 996 | 996 | |||||||||||||||||||||||||
Deferred incentive compensation | 34 | 34 | 34 | ||||||||||||||||||||||||||
Deferred income taxes | 468 | 468 | 468 | ||||||||||||||||||||||||||
Restricted investments held to maturity | 4,743 | 4,743 | 4,743 | ||||||||||||||||||||||||||
Restricted cash | 1,158 | 1,158 | 1,158 | ||||||||||||||||||||||||||
Assets held for sale, non- current | 4,670 | 3,320 | (1) | 7,990 | 7,990 | ||||||||||||||||||||||||
Deferred debt issuance costs, net | 398 | 398 | 398 | ||||||||||||||||||||||||||
Other assets | 784 | 491 | 1,275 | 1,275 | |||||||||||||||||||||||||
Total assets | $ | 39,023 | $ | 45,855 | $ | 75,845 | $ | 12,960 | $ | 173,683 | $ | — | $ | 173,683 | |||||||||||||||
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Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | |||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(10) | Adjustments | Combined | Adjustments | Combined | |||||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||
Accounts payable | $ | 693 | $ | 734 | $ | 6,721 | $ | 8,148 | $ | 8,148 | |||||||||||||||||||
Accrued expenses | 1,184 | 4,532 | 5,716 | 5,716 | |||||||||||||||||||||||||
Accrued salaries and related expenses | 2,186 | 1,055 | 3,241 | 3,241 | |||||||||||||||||||||||||
Claims payable and claims IBNR | 1,534 | 1,534 | 1,534 | ||||||||||||||||||||||||||
Customer deposits | 3,321 | 3,321 | 3,321 | ||||||||||||||||||||||||||
Deferred revenue | 145 | 145 | 145 | ||||||||||||||||||||||||||
Deferred incentive compensation | 400 | 400 | 400 | ||||||||||||||||||||||||||
Current portion of long-term debt | 10,818 | 4,923 | 15,741 | 15,741 | |||||||||||||||||||||||||
Current portion of capital lease obligations | 10 | 720 | 730 | 730 | |||||||||||||||||||||||||
Liabilities of held for sale businesses | 6,755 | 6,755 | 6,755 | ||||||||||||||||||||||||||
Other current liabilities | 198 | 407 | 605 | 605 | |||||||||||||||||||||||||
Total current liabilities | 1,436 | 23,628 | 21,272 | — | 46,336 | — | 46,336 | ||||||||||||||||||||||
Deferred incentive compensation | 946 | 946 | 946 | ||||||||||||||||||||||||||
Long-term debt, net of current portion | 1,775 | 8,962 | 10,737 | 10,737 | |||||||||||||||||||||||||
Capital lease obligations net of current portion | 468 | 468 | �� | 468 | |||||||||||||||||||||||||
Revolving line of credit | 15,616 | 15,616 | 15,616 | ||||||||||||||||||||||||||
Subordinated vendor debt | 8,723 | 8,723 | 8,723 | ||||||||||||||||||||||||||
Other long-term liabilities | 405 | 208 | 613 | 613 | |||||||||||||||||||||||||
Minority Interest | 6,767 | (3),(5) | 6,767 | 6,767 | |||||||||||||||||||||||||
Temporary capital | 4,743 | 5,635 | (568 | )(3) | 9,810 | (5,067 | )(7) | 4,743 | |||||||||||||||||||||
Preferred stock | 1 | 1 | (1 | )(7) | — | ||||||||||||||||||||||||
Common stock | 7 | 30 | 13 | (12 | )(3),(5) | 38 | (23 | )(7) | 15 | ||||||||||||||||||||
Additional paid-in capital | 22,742 | 79,700 | 24,489 | (36,413 | )(1),(3),(5) | 90,518 | 5,091 | (7) | 95,609 | ||||||||||||||||||||
Retained earnings (accumulated deficit) | 9,673 | (65,319 | ) | (3,906 | ) | 43,186 | (1),(2),(3),(5) | (16,366 | ) | (16,366 | ) | ||||||||||||||||||
Treasury stock | (159 | ) | (159 | ) | (159 | ) | |||||||||||||||||||||||
Receivable from issuance of common stock | (365 | ) | (365 | ) | (365 | ) | |||||||||||||||||||||||
Total stockholders’ equity | 31,898 | 14,412 | 20,596 | 6,761 | 73,667 | 5,067 | 78,734 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 39,023 | $ | 45,855 | $ | 75,845 | $ | 12,960 | $ | 173,683 | $ | — | $ | 173,683 | |||||||||||||||
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Opticare | ||||||||||||||||||||||||||||||
Health | U.S. Vision, | Combination | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
Refac | Systems, Inc. | Inc.(10) | Adjustments | Combined | Adjustments | Combined | ||||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||||||||
Managed vision | $ | 28,111 | $ | 28,111 | $ | 28,111 | ||||||||||||||||||||||||
Product sales | 11,295 | 78,123 | 89,418 | (9,964 | )(9) | 79,454 | ||||||||||||||||||||||||
Other services | 18,971 | 18,971 | 18,971 | |||||||||||||||||||||||||||
Licensing-related activities | 1,774 | 1,774 | (283 | )(8) | 1,491 | |||||||||||||||||||||||||
Related party consulting services and other | 30 | 2,722 | 2,752 | 2,752 | ||||||||||||||||||||||||||
Total revenues | 1,804 | 61,099 | 78,123 | 141,026 | (10,247 | ) | 130,779 | |||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Medical claims expense | 22,000 | 22,000 | 22,000 | |||||||||||||||||||||||||||
Cost of product sales | 3,837 | 24,194 | 28,031 | (3,057 | )(9) | 24,974 | ||||||||||||||||||||||||
Cost of services | 8,001 | 8,001 | 8,001 | |||||||||||||||||||||||||||
Licensing-related activities | 119 | 119 | (19 | )(8) | 100 | |||||||||||||||||||||||||
Selling, general and administrative | 4,216 | 24,165 | 51,779 | 80,160 | (7,785 | )(8),(9) | 72,375 | |||||||||||||||||||||||
Loss from early extinguishment of debt | 1,896 | 1,896 | 1,896 | |||||||||||||||||||||||||||
Depreciation and amortization | 1,282 | 3,356 | 2,611 | (2) | 7,249 | (408 | )(9) | 6,841 | ||||||||||||||||||||||
Other charges | 430 | 430 | 430 | |||||||||||||||||||||||||||
Total operating expenses | 4,335 | 61,181 | 79,759 | 2,611 | 147,886 | (11,269 | ) | 136,617 | ||||||||||||||||||||||
Operating income (loss) | (2,531 | ) | (82 | ) | (1,636 | ) | (2,611 | ) | (6,860 | ) | 1,022 | (5,838 | ) | |||||||||||||||||
Other income (expenses): | ||||||||||||||||||||||||||||||
Dividends and interest | 323 | 323 | (41 | )(8) | 282 | |||||||||||||||||||||||||
Interest expense | (2,044 | ) | (1,669 | ) | (3,713 | ) | 201 | (9) | (3,512 | ) | ||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and minority interest | (2,208 | ) | (2,126 | ) | (3,305 | ) | (2,611 | ) | (10,250 | ) | 1,182 | (9,068 | ) | |||||||||||||||||
Income tax (benefit) expense | (674 | ) | 4,927 | 4 | 4,257 | 449 | (8) | 4,706 | ||||||||||||||||||||||
Minority interest | (1,976 | )(4),(6) | (1,976 | ) | (17 | )(9) | (1,993 | ) | ||||||||||||||||||||||
Income (loss) from continuing operations | (1,534 | ) | (7,053 | ) | (3,309 | ) | (635 | ) | (12,531 | ) | 750 | (11,781 | ) | |||||||||||||||||
Discontinued operations: | ||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes and minority interest | (5,300 | ) | (597 | ) | 995 | (4),(6) | (4,902 | ) | 26 | (9) | (4,876 | ) | ||||||||||||||||||
Gain (loss) on disposal of discontinued operations, net of income taxes and minority interest | 38 | 38 | (6 | )(8) | 32 | |||||||||||||||||||||||||
Income (loss) from discontinued operations | 38 | (5,300 | ) | (597 | ) | 995 | (4,864 | ) | 20 | (4,844 | ) | |||||||||||||||||||
Net income (loss) | $ | (1,496 | ) | $ | (12,353 | ) | $ | (3,906 | ) | $ | 360 | $ | (17,395 | ) | $ | 770 | $ | (16,625 | ) | |||||||||||
Basic and diluted loss per share: | ||||||||||||||||||||||||||||||
From continuing operations | $ | (0.94 | ) | |||||||||||||||||||||||||||
From discontinued operations | $ | (0.39 | ) | |||||||||||||||||||||||||||
Total | $ | (1.33 | ) | |||||||||||||||||||||||||||
Basic and diluted weighted average shares outstanding | 12,472,459 | |||||||||||||||||||||||||||||
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Provision | Refac | OptiCare | U.S. Vision | |||
Authorized Capital Stock | Refac’s charter authorizes it to issue up to 21,000,000 shares of stock, consisting of 20,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. At the annual meeting of Refac, an amendment and restatement of Refac’s charter to increase the number of authorized shares of common stock from 20,000,000 to 25,000,000 is proposed. | OptiCare’s charter authorizes it to issue up to 155,000,000 shares of stock, consisting of 150,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. OptiCare’s preferred stock currently consists of Series B 12.5% Voting Cumulative Convertible Participating Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. | U.S. Vision’s certificate of incorporation authorizes it to issue up to 25,000,000 shares of stock, consisting of 20,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. | |||
Voting Rights | Under Refac’s charter and by-laws, common stockholders are entitled to vote at all stockholder meetings and are entitled to cast one vote for each share of stock held by them as of the record date fixed by the Refac board of directors. | Under OptiCare’s charter and by-laws, the common stockholders are entitled to vote at all stockholder meetings and are entitled to cast one vote for each share of stock held by them as of the record date fixed by the OptiCare board of directors. | Under U.S. Vision’s certificate of incorporation and by- laws, common stockholders are entitled to vote at all stockholder meetings and are entitled to cast one vote for each share of stock held by them as of the record date |
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Votes may be cast in person or by proxy. | Votes may be cast in person or by proxy. Except as provided below, common stockholders have the exclusive right to vote for the election of directors and for all other purposes, and preferred stockholders are not entitled to receive notice of any meetings at which they are not entitled to vote or consent. Holders of Series B 12.5% Voting Cumulative Convertible Participating Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are entitled to vote in the same manner and with the same effect as holders of common stock on all matters to be voted on by of common stockholders, voting together and not as separate classes. Each share of Series B preferred stock entitles the holder to one vote for each of the shares of common stock into which it is convertible. Each share of Series C and Series D preferred stock entitles the holder to one vote for each of the 50 and 40 shares of common stock into which it is convertible, respectively. OptiCare’s by-laws provide that as long as Palisade owns more than 50% of the voting power of OptiCare, (i) the Series B preferred stock may be | fixed by the U.S. Vision board of directors. Votes may be cast in person or by proxy. |
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redeemed only with the approval of a majority of the independent directors of OptiCare and (ii) OptiCare may not take certain actions without the approval of a majority of the independent directors. The special voting provisions section may not be amended without the approval of a majority of (i) the independent directors or (ii) stockholders other than Palisade or its transferees. | |||||||
Cumulative Voting | Refac’s charter does not provide for cumulative voting. Holders of Refac’s common stock do not have cumulative voting rights in connection with the election of directors. | OptiCare’s charter provides that there will be no cumulative voting for the election of directors. | U.S. Vision’s certificate of incorporation provides that there will be no cumulative voting for the election of directors. | ||||
Stockholders Meetings | |||||||
Annual Meetings | Refac’s by-laws provide that annual meetings will be held at such date, time and place and time as is designated by the board. | OptiCare’s by-laws provide that annual meetings will be held at such date, time and place and time as is designated by the board, which date shall be within 13 months subsequent to the last annual meeting of stockholders. | U.S. Vision’s by-laws provide that annual meetings will be held at such date, time and place and time as is designated by the board. | ||||
Special Meetings | Refac’s by-laws provide that special meetings of stockholders may be called by the board of directors, the chief executive officer or secretary and must be called by the chief executive officer or secretary at the request of a majority of the stockholders. | OptiCare’s by-laws provide that special meetings of stockholders may be called by the chairman of the board of directors, by the president or by the board of directors, or by written order of a majority of the directors, and must be called by the chairman of the board, the president or the secretary at the request in writing of stockholder owning a majority of | U.S. Vision’s by-laws provide that special meetings of stockholders may be called by the board of directors, the president, or one or more stockholders holding, in the aggregate, at least one- tenth of the shares entitled to vote. |
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the common stock of OptiCare issued and outstanding and entitled to vote. | ||||||
Quorum | Refac’s by-laws provide that at all stockholder meetings a quorum shall consist of the holders of at least 55% of the shares of capital stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy. | OptiCare’s by-laws provide that at all stockholder meetings a quorum shall consist of the holders of at least a majority of the shares of capital stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy. | U.S. Vision’s by-laws provide that at all stockholder meetings a quorum shall consist of the holders of at least a majority of the shares of capital stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy. | |||
Notice of Stockholder Meetings | Refac’s by-laws provide that written notice of every meeting of stockholders will be given not less than 10 nor more than 60 days prior to the meeting to each stockholder of record entitled to vote at such meeting, except that where the matter to be acted upon at the meeting is a merger or consolidation of Refac, or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than 20 nor more than 60 days prior to such meeting. | OptiCare’s by-laws provide that written notice of every meeting of stockholders will be given not less than 10 nor more than 60 days prior to the meeting to each stockholder of record entitled to vote at such meeting. | U.S. Vision’s by-laws provide that written notice of every meeting of stockholders will be given not less than 10 nor more than 60 days prior to the meeting to each stockholder of record entitled to vote at such meeting. | |||
Proxies | Refac’s by-laws provide that each proxy must be in writing executed by the stockholder giving the proxy or his or her authorized attorney. Every proxy shall be revocable unless and until voted, except where an irrevocable proxy permitted by statute has been given. | OptiCare’s by-laws provide that all proxies shall be received and taken charge of by the secretary. Every proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient to support an irrevocable power. | Not addressed. | |||
Actions by Written Consent | Refac’s by-laws allow actions to be taken by stockholders by written consent without a meeting and without prior notice, if a consent | OptiCare’s by-laws allow actions to be taken by stockholders by written consent without a meeting and without prior notice, if a | U.S. Vision’s by-laws allow actions to be taken by stockholders by written consent without a meeting and without prior notice, if a |
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in writing setting forth the action so taken is signed by the holders of outstanding stock having not less than the minimum number of votes necessary to take that action at a meeting at which all shares entitled to vote were present and voted. | consent in writing setting forth the action so taken is signed by the holders of outstanding stock having not less than the minimum number of votes necessary to take that action at a meeting at which all shares entitled to vote were present and voted. | consent in writing setting forth the action so taken is signed by the holders of outstanding stock having not less than the minimum number of votes necessary to take that action at a meeting at which all shares entitled to vote were present and voted. | |||||
Matters Relating to the Board of Directors | |||||||
Number | Refac’s by-laws provide that the number of directors may be increased by the stockholders or by the board of directors or may be decreased by the stockholders. | OptiCare’s by-laws provide that the number of directors will be determined by the board of directors and must be set forth in the notice of any meeting of stockholders for the purpose of electing directors. | U.S. Vision’s by-laws provide that the number of directors may not be less than one. | ||||
Quorum | Refac’s by-laws provide that a majority of the total number of directors then in office shall constitute a quorum. | OptiCare’s by-laws provide that a majority of the total number of directors then in office shall constitute a quorum. | U.S. Vision’s by-laws provide that a majority of the total number of directors then in office shall constitute a quorum. | ||||
Classification of Directors | Refac’s charter and by- laws provide that the board of directors shall be divided into three classes as nearly equal in number as possible with each class’ terms expiring on a staggered basis. If Proposal 4 is adopted at Refac’s annual meeting, the classified board will be eliminated. | OptiCare’s charter and by-laws do not provide for a classified board of directors. | U.S. Vision’s certificate of incorporation and by- laws do not provide for a classified board of directors. | ||||
Resignation and Removal of Directors | Refac’s by-laws provide that a director may resign at any time by giving written notice. Directors may be removed for cause at any time by the vote of a majority of the outstanding common stock. | OptiCare’s by-laws provide that any director may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. | U.S. Vision’s by-laws provide that any director may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. |
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Vacancies of the Board | Refac’s by-laws provide that a vacancy occurring for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled by the vote of a majority of the directors then in office, although less than a quorum, the sole remaining director, or by the stockholders. | OptiCare’s by-laws provide that a vacancy occurring for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled by the vote of a majority of the directors then in office or by the sole remaining director. | U.S. Vision’s by-laws provide that a vacancy occurring for any reason may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a majority of the stockholders then entitled to vote. Directorships resulting from an increase in the authorized number of directors may be filled by the stockholders or the board of directors for a term of office continuing only until the next director election. | ||||
Preemptive Rights | Refac’s charter does not grant any preemptive rights to its stockholders. | OptiCare’s charter does not grant any preemptive rights to its stockholders. | U.S. Vision’s certificate of incorporation does not grant any preemptive rights to its stockholders. | ||||
Dividends | Refac’s by-laws provide that dividends on Refac’s stock may be paid at such times and in such amounts as the board of directors may determine. | OptiCare’s by-laws provide that dividends on OptiCare’s stock may be paid at such times and in such amounts as the board of directors may determine. | U.S. Vision’s by-laws provide that dividends may be declared by the directors. | ||||
Holders of OptiCare’s Series B 12.5% Voting Cumulative Convertible Participating Preferred Stock are entitled to receive, in preference to the holders of common stock or any other junior stock, dividends in an amount equal to the amount of dividends they would receive if their preferred shares had been converted into common stock on the date on which dividends are declared on the common stock. The Series B 12.5% Voting Cumulative Convertible Participating Preferred |
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Stock accumulates an increase in liquidation value at an annual rate of 12.5%. | ||||||
Holders of OptiCare’s Series C Preferred Stock and Series D Preferred Stock are entitled to receive, equally, ratably and on a parity with the common stockholders, dividends in amounts equal to the amount of dividends such holders would receive if their shares were converted into common stock on each date on which dividends are declared on common stock. | ||||||
Limitation of Personal Liability of Directors | Refac’s charter provides that no director shall be personally liable to Refac or its stockholders for monetary damages for breach of fiduciary duty as a director, subject to certain exceptions. | OptiCare’s charter provides that no director shall be personally liable to OptiCare or its stockholders for monetary damages for breach of fiduciary duty as a director, subject to certain exceptions. | U.S. Vision’s certificate of incorporation provides that no director shall be personally liable to U.S. Vision or its stockholders for monetary damages for breach of fiduciary duty as a director, subject to certain exceptions. | |||
Indemnification of Directors and Officers | Refac’s by-laws provide for indemnification of its directors, officers, agents and employees for expenses incurred by them and judgments rendered against them in actions, suits or proceedings in relation to certain matters brought against them as such directors, officers, agents and employees of Refac, respectively, to the fullest extent permitted by Delaware law. The by-laws also require Refac to advance expenses incurred by a director or officer in a legal proceeding prior to final disposition of the proceeding. | OptiCare’s by-laws provide that OptiCare will indemnify any person made or threatened to be made a party or otherwise involved in any action or proceeding (whether civil or criminal or otherwise) by reason of the fact that he or she is or was a director, officer, employee or agent of OptiCare or is or was serving at the request of OptiCare as a director, officer employee or agent of another entity, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and | U.S. Vision’s by-laws provide for indemnification of its directors, officers, agents and employees as well as any person who served as an officer or functionary of another enterprise at the request of U.S. Vision for expenses incurred by them and judgments rendered against them in actions, suits or proceedings in relation to certain matters brought against them as such directors, officers, agents and employees of U.S. Vision, respectively, to the fullest extent permitted by Delaware law so long as certain standards of |
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The charter provides similar indemnification rights. Indemnification protections afforded under the charter and the by-laws are not mutually exclusive. | reasonably incurred by such person in connection with such proceeding. Further, OptiCare may advance expenses necessary to defend such proceedings. The charter provides similar indemnification rights to the fullest extent permissible by law, as amended. Indemnification protections afforded under the charter and the by-laws are not mutually exclusive. | conduct are met. The by-laws also allow U.S. Vision to advance expenses incurred by a director or officer in a legal proceeding prior to final disposition of the proceeding. The certificate of incorporation provides similar indemnification rights. Indemnification protections afforded under the certificate of incorporation and the by-laws are not mutually exclusive. | |||||
Anti-Takeover Matters | |||||||
Rights Plans | Refac has no company rights plan in place. | OptiCare has no company rights plans in place. | U.S. Vision has no company rights plans in place. | ||||
Certain Business Combination Restrictions | |||||||
Section 203 of the Delaware General Corporation Law protects publicly-traded Delaware corporation, such as Refac and OptiCare, from hostile takeovers, and from actions following the takeover, by prohibiting some transactions once an acquiror has gained a significant holding in the corporation. A corporation may elect not to be governed by Section 203 of the Delaware General Corporation Law. | Refac’s charter includes an election that Refac not be subject to or governed by Section 203 of the Delaware General Corporation Law. | Under Section 203(b)(4) of the Delaware General Corporation Law, Section 203 does not apply to OptiCare because it has less than 2000 stockholders of record. | Under Section 203(b)(3) of the Delaware General Corporation Law. Section 203 does not apply to U.S. Vision because its shares are not listed on an exchange and it has less than 2000 stockholders of record. |
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Amendments to Constituent Documents | ||||||
Delaware law provides that an amendment to a corporation’s charter requires that the board of directors adopt a resolution setting forth the proposed amendment and that a majority of the voting power of the then outstanding capital stock approve the amendment, although the charter may provide for a greater vote. | The Refac charter does not include any provisions regarding amendment. As a result, Delaware law applies. Refac’s charter and by- laws provide that the board of directors or stockholders may alter or repeal the by-laws. | OptiCare’s charter includes a provision reserving OptiCare’s rights to amend the charter in accordance with applicable law. OptiCare’s charter and by-laws provide that the board of directors, subject to stockholder approval, may make, alter or repeal the by- laws. | The U.S. Vision certificate of incorporation does not include any provisions regarding amendment. As a result, Delaware law applies. U.S. Vision’s certificate of incorporation and by- laws provide that the board of directors shall be authorized to make, alter or repeal the by- laws. |
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Refac | |
One Bridge Plaza | |
Suite 550 | |
Fort Lee, New Jersey 07024 | |
Attention: Secretary | |
Telephone: (201) 585-0600 | |
OptiCare Health Systems, Inc. | |
87 Grandview Avenue | |
Waterbury, Connecticut 06708 | |
Attention: Chief Executive Officer | |
Telephone: (203) 596-2236 |
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Consolidated Financial Statements of Refac | ||||
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Consolidated Financial Statements of OptiCare Health Systems, Inc. | ||||
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Consolidated Financial Statements of U.S. Vision, Inc. | ||||
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/s/ Grant Thornton LLP | |
GRANT THORNTON LLP |
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December 31, | ||||||||||
2004 | 2003 | |||||||||
(Amounts in thousands, | ||||||||||
except share and | ||||||||||
per share data) | ||||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 457 | $ | 799 | ||||||
Royalties and accounts receivable | 286 | 478 | ||||||||
Notes receivable — current portion | 64 | 302 | ||||||||
Investments being held to maturity | 29,342 | 28,682 | ||||||||
Income taxes receivable | 23 | 636 | ||||||||
Prepaid expenses, deferred income taxes and other current assets | 803 | 899 | ||||||||
Restricted investments being held to maturity | 5,416 | — | ||||||||
Total current assets | 36,391 | 31,796 | ||||||||
Property and equipment — net | 747 | 777 | ||||||||
Available for sale securities | 1,000 | 1,000 | ||||||||
Notes receivable | 141 | 205 | ||||||||
Deferred incentive compensation | — | 34 | ||||||||
Deferred income taxes and other assets | 489 | 468 | ||||||||
Restricted investments being held to maturity | — | 4,743 | ||||||||
Total Assets | $ | 38,768 | $ | 39,023 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current Liabilities | ||||||||||
Accounts payable and accrued expenses | $ | 685 | $ | 693 | ||||||
Deferred revenue | 142 | 145 | ||||||||
Deferred incentive compensation | 1,239 | 400 | ||||||||
Other liabilities | 89 | 198 | ||||||||
Total current liabilities | 2,155 | 1,436 | ||||||||
Deferred incentive compensation | 946 | |||||||||
Commitments and Contingencies | ||||||||||
Temporary Equity | 5,416 | 4,743 | ||||||||
Stockholders’ Equity | ||||||||||
Common stock, $.001 par value; authorized 20,000,000 shares; issued 7,016,049 as of December 31, 2004 and 7,006,049 as of December 31, 2003 | 7 | 7 | ||||||||
Additional paid-in capital | 22,238 | 22,742 | ||||||||
Retained earnings | 9,448 | 9,673 | ||||||||
Treasury stock, at cost, 22,656 shares of common stock, $.001 par value | (159 | ) | (159 | ) | ||||||
Receivable from issuance of common stock | (337 | ) | (365 | ) | ||||||
Total stockholders’ equity | 31,197 | 31,898 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 38,768 | $ | 39,023 | ||||||
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Years Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(Amounts in thousands, except share and per | ||||||||||||||
share data) | ||||||||||||||
Revenues | ||||||||||||||
Licensing-related activities | $ | 1,609 | $ | 1,774 | $ | 2,041 | ||||||||
Gain on sale of licenses | — | — | 4,374 | |||||||||||
Related party consulting services | 170 | 30 | — | |||||||||||
Total revenues | 1,779 | 1,804 | 6,415 | |||||||||||
Costs and Expenses | ||||||||||||||
Licensing-related activities | 124 | 119 | 273 | |||||||||||
Selling, general and administrative expenses | 2,606 | 4,216 | 2,366 | |||||||||||
Total costs and expenses | 2,730 | 4,335 | 2,639 | |||||||||||
Other Income and Expenses | ||||||||||||||
Dividends, interest and other income | 582 | 323 | 147 | |||||||||||
Total other income and expenses | 582 | 323 | 147 | |||||||||||
Income (loss) before provision for taxes on income | (369 | ) | (2,208 | ) | 3,923 | |||||||||
Provision (benefit) for taxes on income | (130 | ) | (674 | ) | 1,412 | |||||||||
Net income (loss) from continuing operations | (239 | ) | (1,534 | ) | 2,511 | |||||||||
Gain (loss) from discontinued operations — net of provision (benefit) for taxes of $15, $21 and ($5,017), respectively | 14 | 38 | (1,697 | ) | ||||||||||
Cumulative effect of change in accounting principle — net of $1,073 tax benefit | — | — | (2,083 | ) | ||||||||||
Net loss | $ | (225 | ) | $ | (1,496 | ) | $ | (1,269 | ) | |||||
Basic earnings (loss) per share: | ||||||||||||||
From continuing operations | $ | (0.03 | ) | $ | (0.27 | ) | $ | 0.66 | ||||||
From discontinued operations | — | $ | 0.01 | $ | (0.44 | ) | ||||||||
From cumulative effect in change in accounting principle | — | — | $ | (0.55 | ) | |||||||||
Total | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.33 | ) | |||||
Basic weighted average shares outstanding | 6,992,105 | 5,717,128 | 3,796,429 | |||||||||||
Diluted earnings (loss) per share: | ||||||||||||||
From continuing operations | $ | (0.03 | ) | $ | (0.27 | ) | $ | 0.66 | ||||||
From discontinued operations | — | $ | 0.01 | $ | (0.44 | ) | ||||||||
From cumulative effect in change in accounting principle | — | — | $ | (0.55 | ) | |||||||||
Total | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.33 | ) | |||||
Diluted weighted average shares outstanding | 6,992,105 | 5,717,128 | 3,812,302 |
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Years Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(Amounts in thousands) | ||||||||||||||
Cash Flows from Operating Activities | ||||||||||||||
Net loss | $ | (225 | ) | $ | (1,496 | ) | $ | (1,269 | ) | |||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||
Depreciation and amortization | 169 | 422 | 207 | |||||||||||
Loss on settlement agreement | 13 | — | — | |||||||||||
Loss on disposal of assets | — | — | 1,003 | |||||||||||
Cumulative effect of changing method of accounting for goodwill | — | — | 3,156 | |||||||||||
Additional impairment of goodwill | — | — | 2,811 | |||||||||||
Impairment of long-lived assets | — | — | 115 | |||||||||||
Deferred income taxes and other assets | (171 | ) | 149 | (238 | ) | |||||||||
Compensation expense related to director options | — | 48 | — | |||||||||||
Loss on sale of assets | 2 | 6 | — | |||||||||||
Loss associated with appraisal rights settlement | — | 29 | — | |||||||||||
Income tax benefit on stock option exercise | 24 | — | — | |||||||||||
(Increase) decrease in assets: | ||||||||||||||
Royalties and accounts receivable | 192 | 189 | 2,977 | |||||||||||
Prepaid expenses and other current assets | (41 | ) | (414 | ) | (96 | ) | ||||||||
Inventory | — | — | 2,140 | |||||||||||
Security deposit | (10 | ) | — | — | ||||||||||
Income taxes receivable | 613 | 3,273 | (3,909 | ) | ||||||||||
Deferred incentive compensation | 331 | 1,632 | (1,666 | ) | ||||||||||
Increase (decrease) in liabilities: | ||||||||||||||
Accounts payable and accrued expenses | (8 | ) | 495 | (588 | ) | |||||||||
Deferred revenue | (3 | ) | 10 | (180 | ) | |||||||||
Deferred incentive compensation | (107 | ) | (1,054 | ) | 2,000 | |||||||||
Other liabilities | (109 | ) | (21 | ) | (75 | ) | ||||||||
Net cash provided by operating activities | 670 | 3,268 | 6,388 | |||||||||||
Cash Flows from Investing Activities | ||||||||||||||
Proceeds from (purchase of) investments being held to maturity | (1,332 | ) | (21,711 | ) | (11,069 | ) | ||||||||
Purchase of available for sale securities | — | (1,000 | ) | — | ||||||||||
Proceeds from (issuance of) Notes receivable | 289 | 213 | (720 | ) | ||||||||||
Proceeds on disposal of assets | — | 2 | 72 | |||||||||||
Additions to property and equipment | (141 | ) | (24 | ) | (48 | ) | ||||||||
Net cash used in investing activities | (1,184 | ) | (22,520 | ) | (11,765 | ) | ||||||||
Cash Flows from Financing Activities | ||||||||||||||
Proceeds from sale of common stock | — | 16,869 | — | |||||||||||
Appraisal rights settlement cost | — | (187 | ) | — | ||||||||||
Proceeds from repayment of officer loan | 28 | — | 10 | |||||||||||
Proceeds from exercise of stock options | 144 | 39 | 7 | |||||||||||
Net cash provided by financing activities | 172 | 16,721 | 17 | |||||||||||
Net increase (decrease) in cash and cash equivalents | (342 | ) | (2,531 | ) | (5,360 | ) | ||||||||
Cash and cash equivalents at beginning of year | 799 | 3,330 | 8,690 | |||||||||||
Cash and cash equivalents at end of year | $ | 457 | $ | 799 | $ | 3,330 | ||||||||
Income taxes paid | — | — | $ | 83 |
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Common Stock | Common Stock | |||||||||||||||||||||||||||||||||||
Par Value $.10 | Par Value $.001 | Additional | Treasury Stock | Receivable from | ||||||||||||||||||||||||||||||||
Paid-In | Retained | Issuance of | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Shares | Amount | Common Stock | ||||||||||||||||||||||||||||
(Amounts in thousands, except share data) | ||||||||||||||||||||||||||||||||||||
Balance, December 31, 2001 | 5,450,887 | $ | 545 | $ | 9,984 | $ | 26,312 | 1,655,626 | $ | (13,874 | ) | $ | (375 | ) | ||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 2,750 | — | 7 | |||||||||||||||||||||||||||||||||
Net loss | (1,269 | ) | ||||||||||||||||||||||||||||||||||
Repayment of note receivable from officer | 10 | |||||||||||||||||||||||||||||||||||
Balance, December 31, 2002 | 5,453,637 | $ | 545 | — | — | $ | 9,991 | $ | 25,043 | 1,655,626 | $ | (13,874 | ) | $ | (365 | ) | ||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 1,500 | 4 | ||||||||||||||||||||||||||||||||||
Merger | (5,455,137 | ) | (545 | ) | 3,512,006 | 4 | 542 | (13,874 | ) | (1,655,626 | ) | 13,874 | ||||||||||||||||||||||||
Modification of non-employee director stock options | 48 | |||||||||||||||||||||||||||||||||||
Appraisal rights settlement | (14 | ) | 22,656 | (159 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 2,000 | — | 35 | |||||||||||||||||||||||||||||||||
Stock issuance to Palisade | 3,469,387 | 3 | 16,878 | |||||||||||||||||||||||||||||||||
Net Loss | (1,496 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2003 | — | — | 6,983,393 | $ | 7 | $ | 22,742 | $ | 9,673 | 22,656 | $ | (159 | ) | $ | (365 | ) | ||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 10,000 | $ | 144 | |||||||||||||||||||||||||||||||||
Tax benefit from exercise of stock option | $ | 24 | ||||||||||||||||||||||||||||||||||
Repayment of note receivable from officer | $ | 28 | ||||||||||||||||||||||||||||||||||
Temporary Equity | $ | (672 | ) | |||||||||||||||||||||||||||||||||
Net Loss | (225 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2004 | — | — | 6,993,393 | $ | 7 | $ | 22,238 | $ | 9,448 | 22,656 | $ | (159 | ) | $ | (337 | ) | ||||||||||||||||||||
F-7
Table of Contents
1. | Business and Summary of Significant Accounting Policies |
A. | Basis of Presentation |
B. | Principles of Consolidation |
C. | Investments |
F-8
Table of Contents
D. | Income Taxes |
E. | Stock Based-Compensation |
2004 | 2003 | 2002 | |||||||||||
Net loss, as reported | $ | (225,000 | ) | $ | (1,496,000 | ) | $ | (1,269,000 | ) | ||||
Less: Total stock-based employee and director compensation expense determined under fair value based on methods for awards granted, modified, or settled, net of related tax effects | (103,000 | ) | (150,000 | ) | (220,000 | ) | |||||||
Add: Additional compensation expense for modification of non-employee director stock options, net of related tax effect | — | 48,000 | — | ||||||||||
Pro forma net loss | $ | (328,000 | ) | $ | (1,598,000 | ) | $ | (1,489,000 | ) | ||||
Loss per share, as reported | |||||||||||||
Basic | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.33 | ) | ||||
Diluted | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.33 | ) | ||||
Pro forma loss per share | |||||||||||||
Basic | $ | (0.05 | ) | $ | (0.28 | ) | $ | (0.39 | ) | ||||
Diluted | $ | (0.05 | ) | $ | (0.28 | ) | $ | (0.39 | ) |
F-9
Table of Contents
F. | Earnings Per Share |
2004 | 2003 | 2002 | ||||||||||
Basic shares | 6,992,105 | 5,717,128 | 3,796,429 | |||||||||
Dilution: Stock options and warrants | — | — | 15,873 | |||||||||
Diluted shares | 6,992,105 | 5,717,128 | 3,812,302 | |||||||||
G. | Cash and Cash Equivalents |
H. | Revenue Recognition |
I. | Using Estimates in Financial Statements |
J. | Intangibles |
F-10
Table of Contents
K. | Property and Equipment |
L. | Reclassifications |
M. | Fair Value of Financial Instruments |
N. | New Accounting Pronouncements |
F-11
Table of Contents
2. | Palisade Merger |
3. | Related Party Transactions |
F-12
Table of Contents
4. | Income Taxes |
2004 | 2003 | 2002 | ||||||||||
Federal | $ | 34,000 | $ | (730,000 | ) | $ | 2,167,000 | |||||
Deferred | (164,000 | ) | 96,000 | (847,000 | ) | |||||||
State and local | — | (40,000 | ) | 92,000 | ||||||||
$ | (130,000 | ) | $ | (674,000 | ) | $ | 1,412,000 | |||||
2004 | 2003 | 2002 | ||||||||||
Statutory rate | (34 | )% | (34 | )% | 34 | % | ||||||
Permanent differences related to merger | — | 5 | % | — | ||||||||
State and local | — | (2 | )% | 2 | % | |||||||
Dividend Received Exclusion | (1 | )% | — | — | ||||||||
Provision (benefit) for taxes on income | (35 | )% | (31 | )% | 36 | % | ||||||
F-13
Table of Contents
December 31, | ||||||||||
2004 | 2003 | |||||||||
Deferred tax assets: | ||||||||||
Assets transferred to the Company from former subsidiaries | $ | 201,000 | $ | 512,000 | ||||||
Management incentive compensation | 482,000 | 391,000 | ||||||||
Federal and state net operating loss carryforwards | 480,000 | 173,000 | ||||||||
Deferred rent and contingent loss on leasehold | 67,000 | 75,000 | ||||||||
Depreciation, insurance policies and other | 84,000 | — | ||||||||
Total deferred tax assets | 1,314,000 | 1,151,000 | ||||||||
Less: Valuation allowance | 287,000 | 297,000 | ||||||||
Net deferred tax assets | $ | 1,027,000 | $ | 854,000 | ||||||
5. | Commitments |
A. | Leasehold Obligations |
F-14
Table of Contents
Net Rent | ||||||||||||
Rental | Sublease | Expense | ||||||||||
Year | Expense | Income | (Income) | |||||||||
2002 | $ | 617,000 | $ | 360,000 | $ | 257,000 | ||||||
2003 | $ | 508,000 | $ | 592,000 | $ | (84,000 | ) | |||||
2004 | $ | 525,000 | $ | 548,000 | $ | (23,000 | ) |
B. | Employment Agreements and Incentive Compensation |
• | the liquid distributable assets of the Company as of June 30, 2005, as calculated under the Palisade Merger Agreement, plus | |
• | the signing bonus, retention and incentive compensation payments paid or payable to him and the signing bonus and incentive compensation payments paid or payable to the Company’s Vice President as a result of the Palisade Merger, less | |
• | the sum of $17,844,000. |
F-15
Table of Contents
C. | Deferred Compensation/ Post-Retirement Benefits |
6. | Investments Held to Maturity and Available for Sale Securities |
F-16
Table of Contents
7. | Property and Equipment |
December 31, | ||||||||
2004 | 2003 | |||||||
Leasehold improvements | $ | 932,000 | $ | 876,000 | ||||
Furniture and fixtures | 352,000 | 289,000 | ||||||
Computer software and equipment | 70,000 | 61,000 | ||||||
Office and other equipment | 23,000 | 12,000 | ||||||
1,377,000 | 1,238,000 | |||||||
Less: Accumulated depreciation | (630,000 | ) | (461,000 | ) | ||||
$ | 747,000 | $ | 777,000 | |||||
8. | Stockholders’ Equity |
Stock Option Plans |
F-17
Table of Contents
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
2004 | Price | 2003 | Price | 2002 | Price | |||||||||||||||||||
Outstanding at beginning of year | 232,500 | $ | 6.47 | 244,000 | $ | 6.32 | 485,750 | $ | 6.88 | |||||||||||||||
Options granted | — | — | — | — | — | — | ||||||||||||||||||
Options exercised | (50,000 | ) | 2.88 | (11,500 | ) | 3.42 | (2,750 | ) | 2.70 | |||||||||||||||
Options forfeited | — | — | — | — | (239,000 | ) | 7.49 | |||||||||||||||||
Outstanding at end of year | 182,500 | $ | 7.45 | 232,500 | $ | 6.47 | 244,000 | $ | 6.32 | |||||||||||||||
Exercisable at end of year | 182,500 | $ | 7.45 | 232,500 | $ | 6.47 | 244,000 | $ | 6.32 | |||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||||
Price Range | Average | Average | Exercisable at | Average | ||||||||||||||||||||||
Outstanding at | Contract Life | Exercise | December 31, | Exercise | ||||||||||||||||||||||
Minimum | Maximum | December 31, 2004 | (Years) | Price | 2004 | Price | ||||||||||||||||||||
$ | 2.50 | $ | 3.50 | 40,000 | 1.22 | $ | 2.50 | 40,000 | $ | 2.50 | ||||||||||||||||
$ | 3.51 | $ | 4.70 | 7,500 | 4.96 | $ | 3.81 | 7,500 | $ | 3.81 | ||||||||||||||||
$ | 4.71 | $ | 7.10 | 10,000 | 3.96 | $ | 6.88 | 10,000 | $ | 6.88 | ||||||||||||||||
$ | 7.11 | $ | 9.50 | 125,000 | 2.20 | $ | 9.30 | 125,000 | $ | 9.30 | ||||||||||||||||
Total | 182,500 | 2.20 | $ | 7.45 | 182,500 | $ | 7.45 | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
2004 | Price | 2003 | Price | |||||||||||||
Outstanding at beginning of year | 150,000 | $ | 4.64 | — | — | |||||||||||
Options granted | 45,000 | 4.72 | 150,000 | 4.64 | ||||||||||||
Options exercised | — | — | — | — | ||||||||||||
Options forfeited | — | — | — | — | ||||||||||||
Outstanding at end of year | 195,000 | $ | 4.66 | 150,000 | $ | 4.64 | ||||||||||
Exercisable at end of year | 115,001 | �� | $ | 4.65 | 50,000 | $ | 4.64 | |||||||||
F-18
Table of Contents
Weighted | Weighted | Weighted | ||||||||||||||||||||||||
Price Range | Outstanding at | Average | Average | Exercisable at | Average | |||||||||||||||||||||
December 31, | Contract Life | Exercise | December 31, | Exercise | ||||||||||||||||||||||
Minimum | Maximum | 2004 | (Years) | Price | 2004 | Price | ||||||||||||||||||||
$ | 4.20 | $ | 4.70 | 115,000 | 8.24 | $ | 4.49 | 75,001 | $ | 4.49 | ||||||||||||||||
$ | 4.71 | $ | 5.02 | 80,000 | 6.60 | $ | 4.90 | 40,000 | $ | 4.94 | ||||||||||||||||
Total | 195,000 | 7.57 | $ | 4.66 | 115,001 | $ | 4.65 | |||||||||||||||||||
Number of Securities | |||||||||||||
to be Issued Upon | Weighted Average | ||||||||||||
Exercise of | Exercise Price of | Number of Securities | |||||||||||
Outstanding Options, | Outstanding Options, | Remaining Available | |||||||||||
Warrants and Rights | Warrants and Rights | for Future Issuance | |||||||||||
Plan Category | (a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 231,500 | $ | 5.10 | 305,000 | |||||||||
Equity compensation plans not approved by security holders | 25,000 | $ | 5.02 | — | |||||||||
Total | 256,500 | $ | 5.09 | 305,000 | |||||||||
Preferred Stock |
9. | Concentrations and Foreign Source Income |
10. | Wrench versus Taco Bell Litigation |
F-19
Table of Contents
11. | Accounts Payable and Accrued Expenses |
Years Ended | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
Accounts payable | $ | 10,000 | $ | 11,000 | ||||
Amounts payable under service agreements | 71,000 | 26,000 | ||||||
Accounting and auditing | 91,000 | 77,000 | ||||||
Deferred rent | 72,000 | 87,000 | ||||||
Legal | 28,000 | 46,000 | ||||||
Payroll | — | 100,000 | ||||||
Tax reserve | 281,000 | 275,000 | ||||||
Reserve on rental loss | 96,000 | — | ||||||
Other | 36,000 | 71,000 | ||||||
Total | $ | 685,000 | $ | 693,000 | ||||
12. | Asset Management |
13. | Business Combinations and Intangible Assets — Accounting for Goodwill |
F-20
Table of Contents
Reported net loss | $ | (1,269 | ) | |
Cumulative effect of change in accounting principle, net of tax | (2,083 | ) | ||
Adjusted net income | $ | 814 | ||
Reported net loss per share — Basic and Diluted | $ | (0.33 | ) | |
Adjustment for cumulative effect of change in accounting principle — Basic and Diluted | $ | (0.55 | ) | |
Adjusted net income per share — Basic and Diluted | $ | 0.22 |
14. | Accounting for the Impairment or Disposal of Long-lived Assets |
• | management commits to a plan to sell the asset or group, | |
• | the asset or group is available for immediate sale in its present condition, | |
• | actions to complete the plan to sell have been initiated, | |
• | it is probable the sale will be completed within one year, | |
• | the asset or group is being actively marketed at a reasonable price, and | |
• | it is unlikely that significant change will be made to the plan or that it will be withdrawn. |
F-21
Table of Contents
Consumer | Total | |||||||||||||||
Year Ended | Graphic | Product | Products | Discontinued | ||||||||||||
December 31, 2002 | Design Group | Design Group | Group | Operations | ||||||||||||
Revenues | $ | 785,000 | $ | 1,469,000 | $ | 2,168,000 | $ | 4,422,000 | ||||||||
Pretax loss | (1,148,000 | ) | (3,639,000 | ) | (1,927,000 | ) | (6,714,000 | ) |
15. | Business and Asset Dispositions |
A. | Sale of the Graphic Design Group |
B. | Sale of Licensing-Related Assets |
C. | OXO International |
F-22
Table of Contents
D. | Sale of the Product Design Group |
E. | Sale of Refac International, Ltd. |
F-23
Table of Contents
16. | Unaudited Selected Quarterly Financial Data |
2004 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Total revenues | $ | 403,000 | $ | 491,000 | $ | 519,000 | $ | 366,000 | ||||||||
Cost of revenues | 31,000 | 30,000 | 31,000 | 32,000 | ||||||||||||
Net income (loss) from continuing operations | (174,000 | ) | (39,000 | ) | 126,000 | (152,000 | ) | |||||||||
Net income (loss) | $ | (169,000 | ) | $ | (39,000 | ) | $ | 131,000 | $ | (148,000 | ) | |||||
Net income (loss) from continuing operations per basic and diluted shares | $ | (0.02 | ) | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) | |||||
Net income (loss) per basic and diluted shares | $ | (0.02 | ) | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) |
2003 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Total revenues | $ | 451,000 | $ | 543,000 | $ | 346,000 | $ | 464,000 | ||||||||
Cost of revenues | 29,000 | 28,000 | 30,000 | 32,000 | ||||||||||||
Net loss from continuing operations | (1,256,000 | ) | (102,000 | ) | (96,000 | ) | (80,000 | ) | ||||||||
Net loss | $ | (1,247,000 | ) | $ | (83,000 | ) | $ | (92,000 | ) | $ | (74,000 | ) | ||||
Net loss from continuing operations per basic and diluted shares | $ | (0.34 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Net loss per basic and diluted shares | $ | (0.34 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
F-24
Table of Contents
September 30, | December 31, | |||||||||
2005 | 2004 | |||||||||
(Amounts in thousands, | ||||||||||
except share and per share | ||||||||||
data) | ||||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 1,089 | $ | 457 | ||||||
Royalties and accounts receivable | 296 | 286 | ||||||||
Notes receivable — current portion | 29 | 64 | ||||||||
Investments being held to maturity | 28,875 | 29,342 | ||||||||
Income taxes receivable | — | 23 | ||||||||
Prepaid expenses and other current assets | 502 | 803 | ||||||||
Restricted cash and investments being held to maturity | 5,260 | 5,416 | ||||||||
Total current assets | 36,051 | 36,391 | ||||||||
Property and equipment — net | 610 | 747 | ||||||||
Available for sale securities | — | 1,000 | ||||||||
Notes receivable | 1,085 | 141 | ||||||||
Deferred income taxes and other assets | 462 | 489 | ||||||||
Total Assets | $ | 38,208 | $ | 38,768 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current Liabilities | ||||||||||
Accounts payable and accrued expenses | $ | 908 | $ | 685 | ||||||
Deferred revenue | 81 | 142 | ||||||||
Deferred incentive compensation | 421 | 1,239 | ||||||||
Other liabilities | 92 | 89 | ||||||||
Total current liabilities | 1,502 | 2,155 | ||||||||
Temporary Equity | 5,260 | 5,416 | ||||||||
Stockholders’ Equity | ||||||||||
Common stock, $.001 par value; authorized 20,000,000 shares; issued 7,074,049 as of September 30, 2005 and 7,016,049 as of December 31, 2004 | 7 | 7 | ||||||||
Additional paid-in capital | 22,955 | 22,238 | ||||||||
Unearned compensation | (135 | ) | — | |||||||
Retained earnings | 9,262 | 9,448 | ||||||||
Treasury stock, $.001 par value; at cost; 38,986 shares of common stock as of September 30, 2005 and 22,656 as of December 31, 2004 | (306 | ) | (159 | ) | ||||||
Receivable from issuance of common stock | (337 | ) | (337 | ) | ||||||
Total stockholders’ equity | 31,446 | 31,197 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 38,208 | $ | 38,768 | ||||||
F-25
Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||
(Amounts in thousands, except share and per share data) | ||||||||||||||||||
Revenues | ||||||||||||||||||
Licensing-related activities | $ | 321 | $ | 469 | $ | 2,289 | $ | 1,268 | ||||||||||
Related party consulting services | 5 | 50 | 65 | 145 | ||||||||||||||
Total revenues | 326 | 519 | 2,354 | 1,413 | ||||||||||||||
Costs and Expenses | ||||||||||||||||||
Licensing-related activities | 29 | 31 | 90 | 92 | ||||||||||||||
General and administrative expenses | 1,068 | 409 | 2,798 | 1,760 | ||||||||||||||
Total costs and expenses | 1,097 | 440 | 2,888 | 1,852 | ||||||||||||||
Other Income and Expenses | ||||||||||||||||||
Dividend and interest income | 294 | 108 | 746 | 304 | ||||||||||||||
Other expense | (74 | ) | — | (179 | ) | — | ||||||||||||
Total other income and expenses | 220 | 108 | 567 | 304 | ||||||||||||||
Income (loss) before provision or benefit for taxes | (551 | ) | 187 | 33 | (135 | ) | ||||||||||||
Provision (benefit) for taxes on income (loss) | (97 | ) | 61 | 219 | (48 | ) | ||||||||||||
Net income (loss) from continuing operations | (454 | ) | 126 | (186 | ) | (87 | ) | |||||||||||
Income from discontinued operations — net of taxes | — | 5 | — | 10 | ||||||||||||||
Net income (loss) | $ | (454 | ) | $ | 131 | $ | (186 | ) | $ | (77 | ) | |||||||
Basic and diluted income (loss) per share: | ||||||||||||||||||
From continuing operations | $ | (0.06 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.01 | ) | |||||||
From discontinued operations | — | 0.00 | — | 0.00 | ||||||||||||||
Net income (loss) | $ | (0.06 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.01 | ) | |||||||
Basic weighted average shares outstanding | 7,039,399 | 6,993,393 | 7,009,615 | 6,991,678 | ||||||||||||||
Diluted weighted average shares outstanding | 7,039,399 | 6,996,963 | 7,009,615 | 6,991,678 |
F-26
Table of Contents
Nine Months Ended | |||||||||
September 30, | |||||||||
2005 | 2004 | ||||||||
(Amounts in thousands) | |||||||||
Cash Flows from Operating Activities | $ | (270 | ) | $ | (321 | ) | |||
Cash Flows from Investing Activities | |||||||||
Issuance of notes receivable | (1,000 | ) | — | ||||||
Repayment of notes receivable | 91 | 274 | |||||||
Proceeds from investments being held to maturity | 61,580 | 60,955 | |||||||
Purchase of investments being held to maturity | (59,957 | ) | (46,434 | ) | |||||
Purchase of fixed assets | (10 | ) | (141 | ) | |||||
Net cash provided by (used in) investing activities | 704 | 14,654 | |||||||
Cash Flows from Financing Activities | |||||||||
Purchase of treasury stock pursuant to Payment Rights | (147 | ) | — | ||||||
Proceeds from stock purchase | 246 | — | |||||||
Proceeds from exercise of stock options | 99 | 144 | |||||||
Net cash provided by financing activities | 198 | 144 | |||||||
Net increase (decrease) in cash and cash equivalents | 632 | 14,477 | |||||||
Cash and cash equivalents at beginning of period | 457 | 799 | |||||||
Cash and cash equivalents at end of period | $ | 1,089 | $ | 15,276 | |||||
F-27
Table of Contents
F-28
Table of Contents
F-29
Table of Contents
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
Description | 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss), as reported | $ | (454,000 | ) | $ | 131,000 | $ | (186,000 | ) | $ | (77,000 | ) | ||||||
Less: Total stock-based employee compensation expense determined under fair value based on methods for awards granted, modified, or settled, net of related tax effect | (49,000 | ) | (19,000 | ) | (221,000 | ) | (86,000 | ) | |||||||||
Pro forma net income (loss) | $ | (503,000 | ) | $ | 112,000 | $ | (407,000 | ) | $ | (163,000 | ) | ||||||
Income (loss) per share, as reported | |||||||||||||||||
Basic | $ | (0.06 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.01 | ) | ||||||
Diluted | $ | (0.06 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.01 | ) | ||||||
Pro forma income (loss) per share | |||||||||||||||||
Basic | $ | (0.07 | ) | $ | 0.02 | $ | (0.06 | ) | $ | (0.02 | ) | ||||||
Diluted | $ | (0.07 | ) | $ | 0.02 | $ | (0.06 | ) | $ | (0.02 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Description | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Basic shares | 7,039,399 | 6,993,393 | 7,009,615 | 6,991,678 | ||||||||||||
Dilution: stock options | — | 3,570 | — | — | ||||||||||||
Diluted shares | 7,039,399 | 6,996,963 | 7,009,615 | 6,991,678 | ||||||||||||
Income (loss) from continuing operations | $ | (454,000 | ) | $ | 126,000 | $ | (186,000 | ) | $ | (87,000 | ) | |||||
Basic income (loss) | $ | (0.06 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.01 | ) | |||||
Diluted income (loss) | $ | (0.06 | ) | $ | 0.02 | $ | (0.03 | ) | $ | (0.01 | ) |
F-30
Table of Contents
F-31
Table of Contents
• | the LDA of the Company as of June 30, 2005, as calculated under the Palisade Merger Agreement, plus | |
• | the signing bonus, retention and incentive compensation payments paid or payable to him and the signing bonus and incentive compensation payments paid or payable to the Company’s Vice President as a result of the Palisade Merger, less | |
• | the sum of $17,844,000. |
F-32
Table of Contents
F-33
Table of Contents
A. | Pending Mergers with U.S. Vision and OptiCare |
B. | Prior Focus on Asset Management Opportunities |
A. | Sale of the Graphic Design Group |
F-34
Table of Contents
B. | Sale of Licensing-Related Assets |
C. | Sale of the Product Design Group |
F-35
Table of Contents
D. | Sale of RIL |
F-36
Table of Contents
F-37
Table of Contents
F-38
Table of Contents
December 31, | ||||||||||
2004 | 2003 | |||||||||
(Amounts in | ||||||||||
thousands, except | ||||||||||
share and per share | ||||||||||
data) | ||||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 2,228 | $ | 1,695 | ||||||
Accounts receivable, net | 2,164 | 2,044 | ||||||||
Inventories | 1,851 | 1,773 | ||||||||
Assets held for sale | 7,894 | 11,578 | ||||||||
Notes receivable | 82 | 105 | ||||||||
Other current assets | 599 | 354 | ||||||||
Total Current Assets | 14,818 | 17,549 | ||||||||
Property and equipment, net | 2,628 | 2,761 | ||||||||
Goodwill | 16,663 | 16,565 | ||||||||
Intangible assets, net | 1,068 | 1,179 | ||||||||
Assets held for sale, non-current | 1,150 | 4,670 | ||||||||
Deferred debt issuance costs, net | 342 | 398 | ||||||||
Notes receivable, less current portion | 734 | 791 | ||||||||
Restricted cash | 1,413 | 1,158 | ||||||||
Other assets | 998 | 784 | ||||||||
TOTAL ASSETS | $ | 39,814 | $ | 45,855 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
CURRENT LIABILITIES: | ||||||||||
Accounts payable | $ | 2,727 | $ | 734 | ||||||
Claims payable and claims incurred but not reported | 1,897 | 1,534 | ||||||||
Accrued salaries and related expenses | 2,743 | 2,186 | ||||||||
Accrued expenses | 1,874 | 1,184 | ||||||||
Current portion of long-term debt | 332 | 10,818 | ||||||||
Current portion of capital lease obligations | 11 | 10 | ||||||||
Liabilities of held for sale business | 5,683 | 6,755 | ||||||||
Other current liabilities | 1,119 | 407 | ||||||||
Total Current Liabilities | 16,386 | 23,628 | ||||||||
NON-CURRENT LIABILITIES: | ||||||||||
Long-term debt, less current portion | 10,024 | 1,775 | ||||||||
Capital lease obligations, less current portion | 19 | — | ||||||||
Other liabilities | 1,476 | 405 | ||||||||
Total Non-Current Liabilities | 11,519 | 2,180 | ||||||||
COMMITMENTS AND CONTINGENCIES (Notes 10, 12, and 19) | ||||||||||
Series B 12.5% Redeemable, Convertible Preferred Stock at Aggregate Liquidation Preference–Related Party | 6,344 | 5,635 | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||
Series C Preferred Stock, $.001 par value ($16,251 aggregate liquidation preference); 406,158 shares issued and outstanding at December 31, 2004 and December 31, 2003, respectively | 1 | 1 | ||||||||
Common Stock, $0.001 par value; 150,000,000 shares authorized; 30,638,283 and 30,386,061 shares issued and outstanding at December 31, 2004 and 2003, respectively | 31 | 30 | ||||||||
Additional paid-in-capital | 79,192 | 79,700 | ||||||||
Accumulated deficit | (73,659 | ) | (65,319 | ) | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 5,565 | 14,412 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 39,814 | $ | 45,855 | ||||||
F-39
Table of Contents
Year Ended December��31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(Amounts in thousands, except share | ||||||||||||||
and per share data) | ||||||||||||||
NET REVENUES: | ||||||||||||||
Managed vision | $ | 25,495 | $ | 28,111 | $ | 29,426 | ||||||||
Product sales | 11,580 | 11,295 | 10,826 | |||||||||||
Other services | 19,907 | 18,971 | 18,257 | |||||||||||
Other income | 1,921 | 2,722 | 2,346 | |||||||||||
Total net revenues | 58,903 | 61,099 | 60,855 | |||||||||||
OPERATING EXPENSES: | ||||||||||||||
Medical claims expense | 19,156 | 22,000 | 22,311 | |||||||||||
Cost of product sales | 4,128 | 3,837 | 4,098 | |||||||||||
Cost of services | 8,322 | 8,001 | 7,616 | |||||||||||
Selling, general and administrative | 25,053 | 24,165 | 23,411 | |||||||||||
(Gain) loss from early extinguishment of debt | — | 1,896 | (8,789 | ) | ||||||||||
Depreciation | 848 | 1,168 | 1,721 | |||||||||||
Amortization | 117 | 114 | 119 | |||||||||||
Interest | 1,190 | 2,044 | 3,010 | |||||||||||
Total operating expenses | 58,814 | 63,225 | 53,497 | |||||||||||
Income (loss) from continuing operations before income tax | 89 | (2,126 | ) | 7,358 | ||||||||||
Income tax expense | 51 | 4,927 | 2,516 | |||||||||||
Income (loss) from continuing operations | 38 | (7,053 | ) | 4,842 | ||||||||||
Discontinued Operations: | ||||||||||||||
Income (loss) from discontinued operations, net of income tax | (3,973 | ) | (5,300 | ) | 337 | |||||||||
Loss on disposal of discontinued operations, net of income tax expense of $342 in 2002 | (4,405 | ) | — | (4,434 | ) | |||||||||
Loss from discontinued operations | (8,378 | ) | (5,300 | ) | (4,097 | ) | ||||||||
Net income (loss) | (8,340 | ) | (12,353 | ) | 745 | |||||||||
Preferred stock dividends | (709 | ) | (618 | ) | (531 | ) | ||||||||
Net income (loss) available to common stockholders | $ | (9,049 | ) | $ | (12,971 | ) | $ | 214 | ||||||
EARNINGS (LOSS) PER SHARE: | ||||||||||||||
Income (loss) from continuing operations: | ||||||||||||||
Basic | $ | (0.02 | ) | $ | (0.25 | ) | $ | 0.35 | ||||||
Diluted | $ | (0.02 | ) | $ | (0.25 | ) | $ | 0.09 | ||||||
Loss from discontinued operations: | ||||||||||||||
Basic | $ | (0.28 | ) | $ | (0.18 | ) | $ | (0.33 | ) | |||||
Diluted | $ | (0.28 | ) | $ | (0.18 | ) | $ | (0.08 | ) | |||||
Net income (loss): | ||||||||||||||
Basic | $ | (0.30 | ) | $ | (0.43 | ) | $ | 0.02 | ||||||
Diluted | $ | (0.30 | ) | $ | (0.43 | ) | $ | 0.01 |
F-40
Table of Contents
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(Amounts in thousands) | ||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||
Net income (loss) | $ | (8,340 | ) | $ | (12,353 | ) | $ | 745 | ||||||
(Income) loss on discontinued operations | 8,378 | 5,300 | 4,097 | |||||||||||
Income (loss) from continuing operations | 38 | (7,053 | ) | 4,842 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||
Depreciation | 848 | 1,168 | 1,721 | |||||||||||
Amortization | 117 | 114 | 119 | |||||||||||
Deferred income taxes | — | 4,800 | 3,000 | |||||||||||
Bad debt (income) expense | (46 | ) | 162 | 173 | ||||||||||
Non-cash interest expense | 149 | 958 | 258 | |||||||||||
Non-cash (gain) loss on early extinguishment of debt | — | 1,867 | (8,789 | ) | ||||||||||
Non-cash gain on contract settlements | (12 | ) | (529 | ) | — | |||||||||
Non-cash compensation charges | 181 | 178 | — | |||||||||||
Loss on disposal of fixed assets | — | 62 | — | |||||||||||
Changes in operating assets and liabilities | ||||||||||||||
Accounts receivable | (74 | ) | (219 | ) | 436 | |||||||||
Inventories | (78 | ) | 23 | 29 | ||||||||||
Other assets | (563 | ) | 9 | (160 | ) | |||||||||
Accounts payable and accrued expenses | 3,575 | (236 | ) | (2,501 | ) | |||||||||
Other liabilities | 1,783 | (111 | ) | (45 | ) | |||||||||
Cash (used by) provided by discontinued operations | (3,038 | ) | (3,964 | ) | 686 | |||||||||
Net cash provided by (used in) operating activities | 2,880 | (2,771 | ) | (231 | ) | |||||||||
INVESTING ACTIVITIES: | ||||||||||||||
Purchases of property and equipment, net of disposals | (715 | ) | (749 | ) | (750 | ) | ||||||||
Purchase of notes receivable | — | — | (1,350 | ) | ||||||||||
Payments received on notes receivable | 183 | 458 | 658 | |||||||||||
Refund of security deposits | — | 775 | — | |||||||||||
Purchase of restricted investments | (260 | ) | (900 | ) | — | |||||||||
Investments in acquisitions, excluding cash | (65 | ) | (6,192 | ) | — | |||||||||
Net proceeds from sale of discontinued operations | 700 | — | 3,862 | |||||||||||
Net cash (used in) provided by investing activities | (157 | ) | (6,608 | ) | 2,420 | |||||||||
FINANCING ACTIVITIES: | ||||||||||||||
Proceeds from long-term debt | — | 314 | 23,474 | |||||||||||
Net increase (decrease) in revolving credit facility | (2,004 | ) | 8,837 | (4,917 | ) | |||||||||
Proceeds from exercise of warrants | — | — | 2,450 | |||||||||||
Proceeds from issuance of stock | 20 | 144 | 4,000 | |||||||||||
Principal payments on long-term debt | (300 | ) | (988 | ) | (25,143 | ) | ||||||||
Equipment financing | 238 | — | ||||||||||||
Payment of financing costs | (128 | ) | (261 | ) | (1,445 | ) | ||||||||
Principal payments on capital lease obligations | (16 | ) | (58 | ) | (58 | ) | ||||||||
Net cash (used in) provided by financing activities | (2,190 | ) | 7,988 | (1,639 | ) | |||||||||
Increase (decrease) in cash and cash equivalents | 533 | (1,391 | ) | 550 | ||||||||||
Cash and cash equivalents at beginning of year | 1,695 | 3,086 | 2,536 | |||||||||||
Cash and cash equivalents at end of year | $ | 2,228 | $ | 1,695 | $ | 3,086 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
Cash paid for interest | $ | 1,016 | $ | 1,061 | $ | 1,359 | ||||||||
Cash paid (received) for income taxes | 46 | 76 | 45 | |||||||||||
Reduction of debt in exchange for reduction of receivables | — | 86 | 1,011 | |||||||||||
Conversion of senior subordinated debt to Series C Preferred Stock | — | 16,251 | — |
F-41
Table of Contents
Series A | Series C | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||||||||||
Paid-In | Accumulated | ||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||||||
(Amounts in thousands, except share data) | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2001 | 418,803 | $ | 1 | — | — | 12,815,092 | $ | 13 | $ | 60,679 | $ | (53,711 | ) | $ | 6,982 | ||||||||||||||||||||||
Issuance of common stock | — | — | — | — | 17,525,000 | 17 | 2,433 | — | 2,450 | ||||||||||||||||||||||||||||
Cancellation of shares | (418,803 | ) | (1 | ) | — | — | (1,426,102 | ) | (1 | ) | (375 | ) | — | (377 | ) | ||||||||||||||||||||||
Issuance of warrants | — | — | — | — | — | — | 1,383 | — | 1,383 | ||||||||||||||||||||||||||||
Dividends on redeemable preferred stock | — | — | — | — | — | — | (531 | ) | — | (531 | ) | ||||||||||||||||||||||||||
Net income for 2002 | — | — | — | — | — | — | — | 745 | 745 | ||||||||||||||||||||||||||||
Balance at December 31, 2002 | — | $ | — | — | — | 28,913,990 | $ | 29 | $ | 63,589 | $ | (52,966 | ) | $ | 10,652 | ||||||||||||||||||||||
Issuance of preferred stock | — | — | 406,158 | $ | 1 | — | — | 16,113 | — | 16,114 | |||||||||||||||||||||||||||
Issuance of common stock | — | — | — | 1,555,000 | 1 | 651 | — | 652 | |||||||||||||||||||||||||||||
Cancellation of shares | — | — | — | — | (82,929 | ) | — | (35 | ) | — | (35 | ) | |||||||||||||||||||||||||
Dividends on redeemable preferred stock | — | — | — | — | — | — | (618 | ) | — | (618 | ) | ||||||||||||||||||||||||||
Net loss for 2003 | — | — | — | — | — | — | — | (12,353 | ) | (12,353 | ) | ||||||||||||||||||||||||||
Balance at December 31, 2003 | — | $ | — | 406,158 | $ | 1 | 30,386,061 | $ | 30 | $ | 79,700 | $ | (65,319 | ) | $ | 14,412 | |||||||||||||||||||||
Issuance of common stock | — | — | — | — | 375,000 | 1 | 199 | — | 200 | ||||||||||||||||||||||||||||
Issuance of warrants | — | — | — | — | — | — | 33 | — | 33 | ||||||||||||||||||||||||||||
Cancellation of shares | — | — | — | — | (122,778 | ) | — | (31 | ) | — | (31 | ) | |||||||||||||||||||||||||
Dividends on redeemable preferred stock | — | — | — | — | — | — | (709 | ) | — | (709 | ) | ||||||||||||||||||||||||||
Net loss for 2004 | — | — | — | — | — | — | — | (8,340 | ) | (8,340 | ) | ||||||||||||||||||||||||||
Balance at December 31, 2004 | — | $ | — | 406,158 | $ | 1 | 30,638,283 | $ | 31 | $ | 79,192 | $ | (73,659 | ) | $ | 5,565 | |||||||||||||||||||||
F-42
Table of Contents
1. | Organization and Basis of Presentation |
2. | Management’s Plan |
3. | Summary of Significant Accounting Policies |
Principles of Consolidation |
Cash and Cash Equivalents |
F-43
Table of Contents
Receivables |
Inventories |
Property and Equipment |
Estimated | ||||
Classification | Useful Life | |||
Furniture, fixtures and equipment | 5 - 7 years | |||
Leasehold improvements | 7 - 10 years | |||
Computer hardware and software | 3 - 5 years |
Deferred Debt Issuance Costs |
Goodwill and Other Intangible Assets |
F-44
Table of Contents
Managed Vision Revenue |
Product Sales Revenue |
Services Revenue |
Other Income |
F-45
Table of Contents
Medical Claims Expense |
Cost of Product Sales |
Cost of Services |
Malpractice Claims |
Insurance Operations |
Income Taxes |
F-46
Table of Contents
Redeemable Convertible Preferred Stock |
Stock-based Compensation |
2004 | 2003 | 2002 | ||||||||||
Risk free interest rate | 3.3% | 3.0% | 3.0% | |||||||||
Dividends | — | — | — | |||||||||
Volatility factor | .675 | .60 | .60 | |||||||||
Expected Life | 5 years | 5 years | 5 years |
F-47
Table of Contents
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Net income (loss) as reported | $ | (8,340 | ) | $ | (12,353 | ) | $ | 745 | |||||
Less: Total stock-based employee compensation expense determined under Black-Scholes option pricing model, net of related tax effects | (152 | ) | (357 | ) | (519 | ) | |||||||
Pro forma net income (loss) | $ | (8,492 | ) | $ | (12,710 | ) | $ | 226 | |||||
Earnings (loss) per share — As reported: | |||||||||||||
Basic | $ | (0.30 | ) | $ | (0.43 | ) | $ | 0.02 | |||||
Diluted | $ | (0.30 | ) | $ | (0.43 | ) | $ | 0.01 | |||||
Earnings (loss) per share — Pro forma: | |||||||||||||
Basic | $ | (0.30 | ) | $ | (0.44 | ) | $ | (0.02 | ) | ||||
Diluted | $ | (0.30 | ) | $ | (0.44 | ) | $ | 0.00 |
Fair Value of Financial Instruments |
Concentrations |
Estimates |
F-48
Table of Contents
Reclassifications |
New Accounting Pronouncements |
F-49
Table of Contents
F-50
Table of Contents
4. | Discontinued Operations |
F-51
Table of Contents
F-52
Table of Contents
2004 | 2003 | 2002(1) | ||||||||||
External revenue | $ | 57,254 | $ | 64,603 | $ | 47,455 | ||||||
Intercompany revenue | $ | 5,663 | $ | 4,436 | $ | 9,221 | ||||||
Income (loss)from discontinued operations before tax | $ | (3,973 | ) | $ | (5,300 | ) | $ | 559 | ||||
Income tax expense (benefit) | — | — | 222 | |||||||||
Income (loss) from discontinued operations | (3,973 | ) | (5,300 | ) | 337 | |||||||
Loss on disposal of discontinued operations, net of income tax of $342 in 2002 | (4,405 | ) | — | (4,434 | ) | |||||||
Total loss from discontinued operations | $ | (8,378 | ) | $ | (5,300 | ) | $ | (4,097 | ) | |||
Loss per share from discontinued operations | $ | (0.28 | ) | $ | (0.18 | ) | $ | (0.33 | ) | |||
(1) | The 2002 operating results of the discontinued operations exclude Wise Optical, which was acquired by the Company in February 2003. |
5. | Segment Information |
F-53
Table of Contents
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Revenues: | ||||||||||||||
Managed vision | $ | 25,495 | $ | 28,111 | $ | 29,426 | ||||||||
Consumer vision | 32,455 | 30,871 | 28,842 | |||||||||||
Reportable segment totals | 57,950 | 58,982 | 58,268 | |||||||||||
All other | 1,849 | 2,869 | 3,282 | |||||||||||
Elimination of inter-segment revenues | (896 | ) | (752 | ) | (695 | ) | ||||||||
Total net revenue | $ | 58,903 | $ | 61,099 | $ | 60,855 | ||||||||
Segment income (loss): | ||||||||||||||
Managed vision | $ | 1,183 | $ | 1,271 | $ | 2,631 | (1) | |||||||
Consumer vision | 3,406 | 2,973 | 1,463 | |||||||||||
Total reportable segment income | 4,589 | 4,244 | 4,094 | |||||||||||
All other | 1,341 | 2,053 | 2,335 | |||||||||||
Depreciation | (848 | ) | (1,168 | ) | (1,721 | ) | ||||||||
Amortization expense | (117 | ) | (114 | ) | (119 | ) | ||||||||
Interest expense | (1,190 | ) | (2,044 | ) | (3,010 | ) | ||||||||
Corporate | (3,686 | ) | (3,201 | ) | (3,010 | ) | ||||||||
Gain (loss) on early extinguishment of debt | — | (1,896 | ) | 8,789 | ||||||||||
Income (loss) from continuing operations before income taxes | $ | 89 | $ | (2,126 | ) | $ | 7,358 | |||||||
(1) | Includes a $600 reduction in claims expense due to a favorable adjustment to the reserve. |
F-54
Table of Contents
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Assets: | ||||||||||||||
Managed vision | $ | 15,766 | $ | 15,567 | $ | 15,133 | ||||||||
Consumer vision | 10,716 | 10,229 | 10,200 | |||||||||||
Segment totals | 26,482 | 25,796 | 25,333 | |||||||||||
Discontinued operations | 9,044 | 16,248 | 7,456 | |||||||||||
Corporate and other | 4,288 | 3,811 | 12,316 | |||||||||||
Total | $ | 39,814 | $ | 45,855 | $ | 45,105 | ||||||||
Capital expenditures: | ||||||||||||||
Managed vision | $ | 10 | $ | 135 | $ | 51 | ||||||||
Consumer vision | 716 | 591 | 518 | |||||||||||
Segment totals | 726 | 726 | 569 | |||||||||||
Discontinued operations | 73 | 142 | 391 | |||||||||||
Corporate and other | 7 | 22 | 184 | |||||||||||
Total | $ | 806 | $ | 890 | $ | 1,144 | ||||||||
6. | Restructuring and Other One-Time Charges |
Operations Restructuring |
7. | Receivables |
2004 | 2003 | 2002 | ||||||||||
Balance at beginning of period | $ | 285 | $ | 256 | $ | 268 | ||||||
Additions charged (reductions credited) to expense | (46 | ) | 162 | 173 | ||||||||
Deductions | (74 | ) | (133 | ) | (185 | ) | ||||||
Balance at end of period | $ | 165 | $ | 285 | $ | 256 | ||||||
F-55
Table of Contents
8. | Property and Equipment |
December 31, | ||||||||
2004 | 2003 | |||||||
Leasehold improvements | $ | 3,758 | $ | 3,567 | ||||
Furniture and equipment | 4,922 | 4,495 | ||||||
Computer hardware and software | 3,501 | 3,852 | ||||||
Total | 12,181 | 11,914 | ||||||
Accumulated depreciation and amortization | (9,553 | ) | (9,153 | ) | ||||
Property and equipment, net | $ | 2,628 | $ | 2,761 | ||||
9. | Goodwill and Other Intangible Assets |
Managed | Consumer | |||||||||||
Vision | Vision | Total | ||||||||||
Balance, December 31, 2003 | $ | 11,819 | $ | 4,746 | $ | 16,565 | ||||||
Goodwill from acquisition | 98 | — | 98 | |||||||||
Balance, December 31, 2004 | $ | 11,917 | $ | 4,746 | $ | 16,663 | ||||||
F-56
Table of Contents
2004 | 2003 | ||||||||||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||||||||
Amount | Amortization | Balance | Amount | Amortization | Balance | ||||||||||||||||||||
Service Agreement | $ | 1,658 | $ | (590 | ) | $ | 1,068 | $ | 1,658 | $ | (479 | ) | $ | 1,179 | |||||||||||
Non-compete agreements | 265 | (265 | ) | — | 265 | (265 | ) | — | |||||||||||||||||
Total | $ | 1,923 | $ | (855 | ) | $ | 1,068 | $ | 1,923 | $ | (744 | ) | $ | 1,179 | |||||||||||
10. | Long-Term Debt |
2004 | 2003 | ||||||||
Term note payable to CapitalSource, due January 25, 2006. Monthly principal payments of $25 with balance due at maturity | $ | 1,775 | $ | 2,075 | |||||
Revolving credit note to CapitalSource, due January 25, 2007 | 8,388 | 10,394 | |||||||
Subordinated notes payable due at various dates through 2004. Principal and interest payments are due monthly or annually. Interest is payable at rates ranging from 7% to 11.4% | 193 | 124 | |||||||
Total | 10,356 | 12,593 | |||||||
Less current portion | 332 | 10,818 | |||||||
Total Long-Term Debt | $ | 10,024 | $ | 1,775 | |||||
F-57
Table of Contents
The CapitalSource Loan and Security Agreement |
F-58
Table of Contents
F-59
Table of Contents
Senior Subordinated Secured Notes |
11. | Gain (Loss) on Early Extinguishment of Debt |
F-60
Table of Contents
12. | Leases |
2004 | 2003 | |||||||
Furniture, machinery and equipment | $ | 233 | $ | 197 | ||||
Less accumulated amortization | (203 | ) | (189 | ) | ||||
$ | 30 | $ | 8 | |||||
Capital | Operating | ||||||||
Leases | Leases | ||||||||
2005 | $ | 11 | $ | 2,572 | |||||
2006 | 13 | 2,486 | |||||||
2007 | 6 | 2,275 | |||||||
2008 | — | 1,885 | |||||||
2009 | — | 1,504 | |||||||
Thereafter | — | 10,062 | |||||||
Total minimum lease payments | $ | 30 | $ | 20,784 | |||||
13. | 401(k) Savings Plan |
14. | Redeemable Convertible Preferred Stock |
F-61
Table of Contents
15. | Stockholders’ Equity |
Series C Preferred Stock |
Warrants |
Outstanding | Exercise | |||||
Warrants | Price | |||||
275,000 | $ | 0.14 | ||||
20,000 | $ | 0.16 | ||||
150,000 | $ | 0.29 | ||||
750,000 | $ | 0.40 | ||||
2,000,000 | $ | 1.00 | ||||
50,000 | $ | 3.50 | ||||
30,000 | $ | 4.50 | ||||
3,275,000 | ||||||
Employee Stock Purchase Plan |
F-62
Table of Contents
Stock Plans |
Options | Weighted Average | ||||||||
Outstanding | Exercise Price | ||||||||
December 31, 2001 | 920,458 | $ | 5.62 | ||||||
Granted | 4,732,500 | $ | 0.33 | ||||||
Canceled | (68,892 | ) | $ | 5.71 | |||||
December 31, 2002 | 5,584,066 | $ | 1.14 | ||||||
Granted | 888,000 | $ | 0.66 | ||||||
Exercised | (580,000 | ) | $ | 0.25 | |||||
Canceled | (368,604 | ) | $ | 0.66 | |||||
December 31, 2003 | 5,523,462 | $ | 1.19 | ||||||
Granted | 1,567,000 | $ | 0.50 | ||||||
Exercised | (92,500 | ) | $ | 0.21 | |||||
Canceled | (359,519 | ) | $ | 3.62 | |||||
December 31, 2004 | 6,638,443 | $ | 0.90 | ||||||
F-63
Table of Contents
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted Average | ||||||||||||||||||||
Remaining | ||||||||||||||||||||
Outstanding | Contractual Life | Weighted Average | Exercisable | Weighted Average | ||||||||||||||||
Exercise Price | Options | (Years) | Exercise Price | Options | Exercise Price | |||||||||||||||
$0.15 - $0.16 | 1,300,000 | 7.0 | $ | 0.15 | 975,000 | $ | 0.15 | |||||||||||||
$0.20 - $0.30 | 2,207,500 | 8.2 | $ | 0.25 | 1,005,000 | $ | 0.23 | |||||||||||||
$0.31 - $0.36 | 540,000 | 7.9 | $ | 0.36 | 535,000 | $ | 0.36 | |||||||||||||
$0.45 | 220,000 | 9.3 | $ | 0.45 | 220,000 | $ | 0.45 | |||||||||||||
$0.65 - $0.77 | 1,145,000 | 8.8 | $ | 0.67 | 270,750 | $ | 0.65 | |||||||||||||
$1.00 - $1.78 | 245,000 | 7.2 | $ | 1.14 | 145,000 | $ | 1.24 | |||||||||||||
$2.00 - $2.56 | 545,131 | 5.7 | $ | 2.35 | 445,131 | $ | 2.43 | |||||||||||||
$5.85 | 428,750 | 4.6 | $ | 5.85 | 428,750 | $ | 5.85 | |||||||||||||
$6.37 - $19.12 | 7,062 | 4.6 | $ | 12.74 | 7,062 | $ | 12.74 | |||||||||||||
Total | 6,638,443 | 7.6 | $ | 0.90 | 4,031,693 | $ | 1.17 | |||||||||||||
16. | Related Party Transactions |
F-64
Table of Contents
17. | Earnings (Loss) Per Common Share |
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Income (loss) from continuing operations | $ | 38 | $ | (7,053 | ) | $ | 4,842 | |||||||
Preferred stock dividends | (709 | ) | (618 | ) | (531 | ) | ||||||||
Income (loss) from continuing operations applicable to Common stockholders | (671 | ) | (7,671 | ) | 4,311 | |||||||||
Discontinued operations | (8,378 | ) | (5,300 | ) | (4,097 | ) | ||||||||
Net income (loss) applicable to common shareholders | $ | (9,049 | ) | $ | (12,971 | ) | $ | 214 | ||||||
Weighted average common shares — basic | 30,598,203 | 30,066,835 | 12,552,185 | |||||||||||
Effect of dilutive securities: | ||||||||||||||
Options | * | * | 790,102 | |||||||||||
Warrants | * | * | 7,887,094 | |||||||||||
Preferred Stock | * | * | 29,942,229 | |||||||||||
Weighted average common shares — dilutive | 30,598,203 | 30,066,835 | 51,171,610 | |||||||||||
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Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Basic Earnings Per Share: | |||||||||||||
Income (loss) from continuing operations | $ | (0.02 | ) | $ | (0.25 | ) | $ | 0.35 | |||||
Discontinued operations | (0.28 | ) | (0.18 | ) | (0.33 | ) | |||||||
Net income (loss) per common share | $ | (0.30 | ) | $ | (0.43 | ) | $ | 0.02 | |||||
Diluted Earnings Per Share: | |||||||||||||
Income (loss) from continuing operations | $ | (0.02 | ) | $ | (0.25 | ) | $ | 0.09 | |||||
Discontinued operations | (0.28 | ) | (0.18 | ) | $ | (0.08 | ) | ||||||
Net income (loss) per common share | $ | (0.30 | ) | $ | (0.43 | ) | $ | 0.01 | |||||
* | Anti-dilutive |
2004 | 2003 | 2002 | |||||||||||
Options | 6,638,443 | 5,523,462 | 2,111,566 | ||||||||||
Warrants | 3,275,000 | 3,125,000 | 2,830,000 | ||||||||||
Convertible preferred stock | 65,621,514 | 60,574,323 | — | ||||||||||
Total | 75,534,957 | 69,222,785 | 4,941,566 | ||||||||||
18. | Income Taxes |
2004 | 2003 | ||||||||
Deferred tax assets (liabilities): | |||||||||
Net operating loss carryforwards | $ | 4,976 | $ | 2,956 | |||||
Accruals | 1,687 | 1,336 | |||||||
Allowance for bad debts | — | 138 | |||||||
Depreciation and amortization | 1,974 | 2,279 | |||||||
Other | 366 | 420 | |||||||
Total deferred tax assets | 9,003 | 7,129 | |||||||
Valuation allowance | (9,003 | ) | (7,129 | ) | |||||
Total deferred tax assets, net | $ | — | $ | — | |||||
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2004 | 2003 | 2002 | |||||||||||
Current: | |||||||||||||
Federal | $ | 3 | $ | — | $ | — | |||||||
State | 48 | 127 | 80 | ||||||||||
Total current | 51 | 127 | 80 | ||||||||||
Deferred: | |||||||||||||
Federal | — | 3,980 | 2,020 | ||||||||||
State | — | 820 | 416 | ||||||||||
Total deferred | — | 4,800 | 2,436 | ||||||||||
Total income tax expense | $ | 51 | $ | 4,927 | $ | 2,516 | |||||||
2004 | 2003 | 2002 | ||||||||||
Tax provision at U.S. Statutory Rate | 34 | % | (34 | )% | 34 | % | ||||||
State income taxes, net of federal benefit | 36 | % | 29 | % | 5 | % | ||||||
Non-deductible expenses and other | (355 | )% | (37 | )% | (5 | )% | ||||||
Change in valuation allowance | 342 | % | 274 | % | — | |||||||
Effective income tax rate | 57 | % | 232 | % | 34 | % | ||||||
19. | Commitments and Contingencies |
Health Service Organization Lawsuits |
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A. PrimeVision Health, Inc. v. The Brinkenhoff Medical Center, Inc., Michael Brinkenhoff, M.D., Tri-County Eye Institute, and Mark E. Schneider, M.D., filed in the United States District Court for the Central District of California; | |
B. PrimeVision Health, Inc. v. Robert M. Thomas, Jr., M.D., a medical corporation, Robert M. Thomas, Jr., M.D., Jeffrey P. Wasserstrom, M.D., a medical corporation, Jeffrey P. Wasserstrom, M.D., Lawrence S. Rice, a medical corporation and Lawrence S. Rice, M.D., filed in the United States District Court for the Southern District of California; | |
C. PrimeVision Health, Inc. v. The Milne Eye Medical Center, P.C. and Milton J. Milne, M.D., filed in the United States District Court for the District of Maryland; | |
D. PrimeVision Health, Inc. v. Eye Surgeons of Indiana, P.C., Michael G. Orr, M.D., Kevin L. Waltz, M.D. and Surgical Care, Inc., in the United States District Court for the Southern District of Indiana, Indianapolis Division; | |
E. PrimeVision Health, Inc. v. Downing-McPeak Vision Centers, P.S.C. and John E. Downing, M.D., in the United States District Court for the Western District of Kentucky, Bowling Green Division; | |
F. Prime Vision Health, Inc. v. HCS Eye Institute, P.C., Midwest Eye Institute of Kansas City, John C. Hagan, III, M.D. and Michael Somers, M.D., filed in the United States District Court for the Western District of Missouri; and |
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G. PrimeVision Health, Inc. v. Delaware Eye Care Center, P.A., a professional corporation; and Gary Markowitz, M.D., filed in the Superior Court of the State of Delaware, New Castle County. |
Other Litigation |
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20. | Quarterly Financial Information (unaudited) |
First | Second | Third | Fourth | ||||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||||
2004 | |||||||||||||||||
Net revenue | $ | 14,642 | $ | 15,704 | $ | 14,179 | $ | 14,378 | |||||||||
Gross profit | 6,859 | 7,509 | 6,307 | 6,622 | |||||||||||||
Income (loss) from continuing operations | 149 | 453 | (850 | ) | 286 | ||||||||||||
Discontinued operations | (1,113 | ) | (1,409 | ) | (1,324 | ) | (4,532 | ) | |||||||||
Net loss | (964 | ) | (956 | ) | (2,174 | ) | (4,246 | ) | |||||||||
Preferred stock dividend | (174 | ) | (177 | ) | (177 | ) | (181 | ) | |||||||||
Basic and diluted earnings (loss) per share: | |||||||||||||||||
Income (loss) from continuing operations | 0.00 | 0.01 | (0.03 | ) | 0.00 | ||||||||||||
Net loss | (0.04 | ) | (0.04 | ) | (0.08 | ) | (0.14 | ) | |||||||||
2003 | |||||||||||||||||
Net revenue | $ | 16,383 | $ | 15,661 | $ | 15,213 | $ | 13,842 | |||||||||
Gross profit | 7,891 | 7,223 | 6,191 | 5,956 | |||||||||||||
Income (loss) from continuing operations | 510 | (1,318 | ) | (5,605 | ) | (640 | ) | ||||||||||
Discontinued operations | (350 | ) | (856 | ) | (2,874 | ) | (1,220 | ) | |||||||||
Net income (loss) | 160 | (2,174 | ) | (8,479 | ) | (1,860 | ) | ||||||||||
Preferred stock dividend | (140 | ) | (160 | ) | (159 | ) | (159 | ) | |||||||||
Basic earnings (loss) per share: | |||||||||||||||||
Income (loss) from continuing operations | 0.01 | (0.05 | ) | (0.19 | ) | (0.03 | ) | ||||||||||
Net income (loss) | 0.00 | (0.08 | ) | (0.29 | ) | (0.07 | ) | ||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||
Income (loss) from continuing operations | 0.01 | (0.05 | ) | (0.19 | ) | (0.03 | ) | ||||||||||
Net income (loss) | 0.00 | (0.08 | ) | (0.29 | ) | (0.07 | ) |
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21. | Subsequent Events |
New Capital Structure |
• | Palisade Concentrated Equity Partnership, L.P., our majority stockholder, purchased, for approximately $4.0 million in cash, 252,525 shares of our Series D Preferred Stock, par value $0.001 per share, which are convertible into 10,101,000 shares of our common stock and Linda Yimoyines, the spouse of our Chairman and former Chief Executive Officer, purchased for approximately $0.445 million in cash, 28,093 shares of our Series D Preferred Stock which are convertible into 1,123,720 shares of our common stock. Each holder of Series D Preferred Stock is entitled to vote, on an as converted basis, on all matters with the holders of common stock and receive dividends equally and ratably with the holders of common stock in an amount equal to the dividends such holder would receive if it had converted its Series D Preferred Stock into Common Stock on the date the dividends are declared. | |
• | OptiCare Acquisition Corp., our wholly-owned subsidiary entered into an Asset Purchase Agreement with Wise Optical, LLC and AECC/ Pearlman Buying Group, LLC, both entities formed by Dean J. Yimoyines, M.D. our former Chief Executive Officer, current President and Chief Executive Officer of our medical affiliate, OptiCare P.C., and a current member of our Board of Directors, pursuant to which we sold, effective as of December 31,2004, substantially all of the assets and certain liabilities of our Distribution Division, which consisted of our contact lens distributor, Wise Optical, and our Optical Buying Group, for an aggregate purchase price of $4,150,000, less a working capital adjustment of $575,000 and closing costs and other direct costs of $349,000. | |
• | We, together with certain of our subsidiaries, entered into the Third Amendment to the Second Amended and Restated Revolving Credit, Term Loan and Security Agreement with CapitalSource Finance LLC, our senior lender. The Loan Amendment amends the terms of the Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of March 29, 2004, as amended by the Waiver and First Amendment to Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of August 16, 2004, and the Second Amendment to Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of August 27, 2004, to reduce the tangible net worth covenant for December 2004 and January 2005 from ($3,000,000) to ($6,500,000). Without this Amendment, the Company would have been in violation of the tangible net worth covenant at December 31, 2004. Under the revolving credit, term loan and security agreement, as amended, we must maintain a tangible net worth of at least ($3,000,000) after February 1, 2005. |
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As of December 31, 2004 | |||||||||||
Actual | Pro forma | ||||||||||
(Amounts in thousands) | |||||||||||
(Unaudited) | |||||||||||
Long-term debt (including current portion): | |||||||||||
Term note payable | $ | 1,775 | $ | 1,725 | |||||||
Revolving credit note | 8,388 | 2,293 | |||||||||
Subordinated notes payable | 193 | 193 | |||||||||
Total long-term debt (including current portion) | 10,356 | 4,211 | |||||||||
Series B 12.5% Voting, Redeemable, Cumulative Convertible Participating Preferred Stock; $0.001 Par value, 3,500,000 authorized, 3,204,959 shares issued and outstanding | 6,344 | 6,344 | |||||||||
Stockholders’ equity: | |||||||||||
Series C Preferred Stock, $0.001 par value; ($16,251 aggregate liquidation preference); 406,158 shares issued and outstanding | 1 | 1 | |||||||||
Series D Preferred Stock, $0.001 par value; ($4,445 aggregate liquidation preference); no shares issued or outstanding (actual); 280,618 shares issued and outstanding (pro forma) | — | — | |||||||||
Common Stock, $0.001 par value; 150,000,000 shares authorized; 30,638,283 shares issued and outstanding | 31 | 31 | |||||||||
Additional paid-in capital | 79,192 | 83,637 | |||||||||
Accumulated deficit | (73,659 | ) | (73,659 | ) | |||||||
Total stockholders’ equity | 5,565 | 10,010 | |||||||||
Total Capitalization | $ | 22,265 | $ | 20,565 | |||||||
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September 30, | December 31, | |||||||||
2005 | 2004 | |||||||||
(Amounts in thousands) | ||||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 2,142 | $ | 2,228 | ||||||
Accounts receivable, net | 2,122 | 2,164 | ||||||||
Inventory | 1,808 | 1,851 | ||||||||
Assets held for sale | — | 7,894 | ||||||||
Other current assets | 750 | 681 | ||||||||
TOTAL CURRENT ASSETS | 6,822 | 14,818 | ||||||||
Property and equipment, net | 2,084 | 2,628 | ||||||||
Goodwill | 16,888 | 16,663 | ||||||||
Intangible assets, net | 985 | 1,068 | ||||||||
Assets held for sale, non-current | — | 1,150 | ||||||||
Other assets | 3,385 | 3,487 | ||||||||
TOTAL ASSETS | $ | 30,164 | $ | 39,814 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
CURRENT LIABILITIES: | ||||||||||
Accounts payable | $ | 1,028 | $ | 2,727 | ||||||
Accrued expenses | 6,030 | 6,514 | ||||||||
Current portion of long-term debt | 1,519 | 332 | ||||||||
Current portion of long-term debt — related party | 1,000 | — | ||||||||
Current portion of capital lease obligations | 54 | 11 | ||||||||
Liabilities of held for sale business | — | 5,683 | ||||||||
Other current liabilities | 897 | 1,119 | ||||||||
TOTAL CURRENT LIABILITIES | 10,528 | 16,386 | ||||||||
Long-term debt, less current portion | 898 | 10,024 | ||||||||
Capital lease obligations, less current portion | 115 | 19 | ||||||||
Other liabilities | 352 | 1,476 | ||||||||
TOTAL NON-CURRENT LIABILITIES | 1,365 | 11,519 | ||||||||
Series B 12.5% mandatorily redeemable, convertible preferred stock — related party | 6,929 | 6,344 | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||
Series C & D preferred stock — related party | 1 | 1 | ||||||||
Common stock | 31 | 31 | ||||||||
Additional paid-in-capital | 83,051 | 79,192 | ||||||||
Accumulated deficit | (71,741 | ) | (73,659 | ) | ||||||
TOTAL STOCKHOLDERS’ EQUITY | 11,342 | 5,565 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 30,164 | $ | 39,814 | ||||||
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Three Months Ended | Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||||||||
(Amounts in thousands, except share data) | |||||||||||||||||||
NET REVENUES: | |||||||||||||||||||
Managed vision | $ | 6,653 | $ | 6,547 | $ | 19,439 | $ | 18,864 | |||||||||||
Product sales | 2,871 | 2,860 | 8,837 | 8,931 | |||||||||||||||
Other services | 5,317 | 4,771 | 15,088 | 15,271 | |||||||||||||||
Other income | 75 | — | 848 | 1,458 | |||||||||||||||
Total net revenues | 14,916 | 14,178 | 44,212 | 44,524 | |||||||||||||||
OPERATING EXPENSES: | |||||||||||||||||||
Medical claims expense | 4,779 | 4,913 | 14,216 | 14,274 | |||||||||||||||
Cost of product sales | 1,022 | 1,092 | 3,108 | 3,200 | |||||||||||||||
Cost of services | 2,088 | 1,865 | 5,730 | 6,374 | |||||||||||||||
Selling, general and administrative | 6,300 | 6,617 | 18,724 | 19,275 | |||||||||||||||
Depreciation | 254 | 232 | 750 | 645 | |||||||||||||||
Amortization | 28 | 31 | 83 | 86 | |||||||||||||||
Interest | 175 | 298 | 553 | 886 | |||||||||||||||
Total operating expenses | 14,646 | 15,048 | 43,164 | 44,740 | |||||||||||||||
Income (loss) from continuing operations before income tax | 270 | (870 | ) | 1,048 | (216 | ) | |||||||||||||
Income tax expense (benefit) | — | (20 | ) | 50 | 32 | ||||||||||||||
Income (loss) from continuing operations | 270 | (850 | ) | 998 | (248 | ) | |||||||||||||
Discontinued operations: | |||||||||||||||||||
Income (loss) from discontinued operations | 920 | (1,324 | ) | 920 | (3,846 | ) | |||||||||||||
Income tax expense (benefit) | — | — | — | — | |||||||||||||||
Income (loss) from discontinued operations | 920 | (1,324 | ) | 920 | (3,846 | ) | |||||||||||||
Net income (loss) | 1,190 | (2,174 | ) | 1,918 | (4,094 | ) | |||||||||||||
Preferred stock dividends | (199 | ) | (177 | ) | (585 | ) | (528 | ) | |||||||||||
Net income (loss) available to common stockholders | $ | 991 | $ | (2,351 | ) | $ | 1,333 | $ | (4,622 | ) | |||||||||
EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||
Earnings Per Share — Basic: | |||||||||||||||||||
Income (loss) from continuing operations applicable to common stockholders | $ | 0.00 | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | |||||||||
Income (loss) from continuing operations applicable to participating securities | $ | 0.00 | $ | (0.02 | ) | $ | 0.01 | $ | (0.02 | ) | |||||||||
Discontinued operations | $ | 0.03 | $ | (0.05 | ) | $ | 0.03 | $ | (0.12 | ) | |||||||||
Net income (loss) per common share | $ | 0.03 | $ | (0.08 | ) | $ | 0.04 | $ | (0.15 | ) | |||||||||
Earnings Per Share — Diluted: | |||||||||||||||||||
Income (loss) from continuing operations | $ | 0.00 | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) | |||||||||
Discontinued operations | $ | 0.01 | $ | (0.05 | ) | $ | 0.01 | $ | (0.12 | ) | |||||||||
Net income (loss) per common share | $ | 0.01 | $ | (0.08 | ) | $ | 0.01 | $ | (0.15 | ) | |||||||||
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For the Nine Months | |||||||||||
Ended September 30, | |||||||||||
2005 | 2004 | ||||||||||
(Amounts in | |||||||||||
thousands) | |||||||||||
OPERATING ACTIVITIES: | |||||||||||
Net income (loss) | $ | 1,918 | $ | (4,094 | ) | ||||||
(Income) loss on discontinued operations | (920 | ) | 3,846 | ||||||||
Income (loss) from continuing operations | 998 | (248 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
Depreciation | 750 | 645 | |||||||||
Amortization | 83 | 86 | |||||||||
Non-cash interest expense | 105 | 115 | |||||||||
Non-cash gain on contract settlements | (153 | ) | — | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | 42 | (107 | ) | ||||||||
Inventory | 43 | (76 | ) | ||||||||
Other assets | 95 | (426 | ) | ||||||||
Accounts payable and accrued expenses | (2,203 | ) | 3,101 | ||||||||
Other liabilities | (184 | ) | 271 | ||||||||
Cash (used in) provided by discontinued operations | (157 | ) | 68 | ||||||||
Net cash (used in) provided by operating activities | (581 | ) | 3,429 | ||||||||
INVESTING ACTIVITIES: | |||||||||||
Cash received on notes receivable | 110 | 111 | |||||||||
Purchase of fixed assets, net of disposals | (206 | ) | (292 | ) | |||||||
Investment in acquisition | (225 | ) | (25 | ) | |||||||
Net proceeds from the sale of discontinued operations | 3,361 | 700 | |||||||||
Purchase of restricted certificates of deposit | (204 | ) | (260 | ) | |||||||
Net cash provided by investing activities | 2,836 | 234 | |||||||||
FINANCING ACTIVITIES: | |||||||||||
Net decrease in revolving credit facility | (7,528 | ) | (2,184 | ) | |||||||
Principal payments on long-term debt | (275 | ) | (278 | ) | |||||||
Proceeds from related party subordinated debt | 1,000 | — | |||||||||
Principal payments on capital lease obligations | (39 | ) | (13 | ) | |||||||
Payment of financing costs | (14 | ) | (5 | ) | |||||||
Proceeds from issuance of Series D preferred stock | 4,445 | — | |||||||||
Equipment financing | 55 | 117 | |||||||||
Payment of bank financing fees | (13 | ) | (65 | ) | |||||||
Proceeds from issuance of common stock | 28 | 20 | |||||||||
Net cash used in financing activities | (2,341 | ) | (2,408 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (86 | ) | 1,255 | ||||||||
Cash and cash equivalents at beginning of period | 2,228 | 1,695 | |||||||||
Cash and cash equivalents at end of period | $ | 2,142 | $ | 2,950 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
Cash paid for interest | $ | 474 | $ | 765 | |||||||
Cash paid for income taxes, net of refunds | $ | 57 | $ | 59 |
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1. | Basis of Presentation |
2. | Management’s Plan |
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3. | New Accounting Pronouncements |
4. | Stock Based Compensation |
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Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||||||
Net income (loss) available to common stockholders, as reported | $ | 991 | $ | (2,351 | ) | $ | 1,333 | $ | (4,622 | ) | |||||||
Less: Total stock-based employee compensation expense, net of related tax effects, determined under the fair value method for all awards | (47 | ) | (45 | ) | (127 | ) | (104 | ) | |||||||||
Pro forma net income (loss) | $ | 944 | $ | (2,396 | ) | $ | 1,206 | $ | (4,726 | ) | |||||||
Earnings (loss) per share — basic: | |||||||||||||||||
As reported | $ | 0.03 | $ | (0.08 | ) | $ | 0.04 | $ | (0.15 | ) | |||||||
Pro forma | $ | 0.03 | $ | (0.08 | ) | $ | 0.04 | $ | (0.15 | ) | |||||||
Earnings (loss) per share — diluted: | |||||||||||||||||
As reported | $ | 0.01 | $ | (0.08 | ) | $ | 0.01 | $ | (0.15 | ) | |||||||
Pro forma | $ | 0.01 | $ | (0.08 | ) | $ | 0.01 | $ | (0.15 | ) |
5. | Discontinued Operations |
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Three Months Ended | Nine Months Ended | |||||||
Sept. 30, 2004 | Sept. 30, 2004 | |||||||
External revenue | $ | 14,182 | $ | 45,285 | ||||
Intercompany revenue | $ | 1,616 | $ | 4,704 | ||||
Loss from discontinued operations before tax | $ | (1,324 | ) | $ | (3,846 | ) | ||
Income tax expense | — | — | ||||||
Loss from discontinued operations | $ | (1,324 | ) | $ | (3,846 | ) | ||
Loss per share from discontinued operations | $ | (0.05 | ) | $ | (0.12 | ) | ||
6. | Intangible Assets |
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7. | Debt |
8. | Segment Information |
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Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||
Revenues: | ||||||||||||||||||
Managed vision | $ | 6,653 | $ | 6,547 | $ | 19,439 | $ | 18,864 | ||||||||||
Consumer vision | 8,426 | 7,861 | 24,684 | 24,797 | ||||||||||||||
Reportable segment totals | 15,079 | 14,408 | 44,123 | 43,661 | ||||||||||||||
Other | 81 | 15 | 866 | 1,539 | ||||||||||||||
Elimination of inter-segment revenues | (244 | ) | (245 | ) | (777 | ) | (676 | ) | ||||||||||
Total net revenue | $ | 14,916 | $ | 14,178 | $ | 44,212 | $ | 44,524 | ||||||||||
Segment income: | ||||||||||||||||||
Managed vision | $ | 534 | $ | 251 | $ | 1,259 | $ | 657 | ||||||||||
Consumer vision | 942 | 678 | 2,760 | 2,739 | ||||||||||||||
Total reportable segment totals | 1,476 | 929 | 4,019 | 3,396 | ||||||||||||||
Other | 83 | (171 | ) | 795 | 1,009 | |||||||||||||
Depreciation | (254 | ) | (232 | ) | (750 | ) | (645 | ) | ||||||||||
Amortization expense | (28 | ) | (31 | ) | (83 | ) | (86 | ) | ||||||||||
Interest expense | (175 | ) | (298 | ) | (553 | ) | (886 | ) | ||||||||||
Corporate | (832 | ) | (1,067 | ) | (2,380 | ) | (3,004 | ) | ||||||||||
Income from continuing operations before tax | $ | 270 | $ | (870 | ) | $ | 1,048 | $ | (216 | ) | ||||||||
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9. | Earnings (Loss) Per Common Share |
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||
EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||
Income (loss) from continuing operations | $ | 270 | $ | (850 | ) | $ | 998 | $ | (248 | ) | ||||||||
Preferred stock dividend | (199 | ) | (177 | ) | (585 | ) | (528 | ) | ||||||||||
Income (loss) from continuing operations applicable to common stockholders and participating securities | $ | 71 | $ | (1,027 | ) | $ | 413 | $ | (776 | ) | ||||||||
Income (loss) from continuing operations applicable to common stockholders | $ | 20 | $ | (332 | ) | $ | 117 | $ | (250 | ) | ||||||||
Income (loss) from continuing operations applicable to participating securities | 51 | (695 | ) | 296 | (526 | ) | ||||||||||||
Discontinued operations | 920 | (1,324 | ) | 920 | (3,846 | ) | ||||||||||||
Net income (loss) applicable to common stockholders | $ | 991 | $ | (2,351 | ) | $ | 1,333 | $ | (4,622 | ) | ||||||||
Weighted average common shares — basic | 30,664,991 | 30,685,060 | 30,649,686 | 30,579,558 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||
Options | 708,727 | * | 938,264 | * | ||||||||||||||
Warrants | 86,045 | * | 106,045 | * | ||||||||||||||
Preferred Stock | 76,846,234 | * | 76,846,234 | * | ||||||||||||||
Weighted average common shares — diluted | 108,305,997 | 30,685,060 | 108,540,229 | 30,579,558 | ||||||||||||||
Earnings Per Share — Basic: | ||||||||||||||||||
Income (loss) from continuing operations applicable to common stockholders | $ | 0.00 | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | ||||||||
Income (loss) from continuing operations applicable to participating securities | $ | 0.00 | $ | (0.02 | ) | $ | 0.01 | $ | (0.02 | ) | ||||||||
Discontinued operations | $ | 0.03 | $ | (0.05 | ) | $ | 0.03 | $ | (0.12 | ) | ||||||||
Net income (loss) per common share | $ | 0.03 | $ | (0.08 | ) | $ | 0.04 | $ | (0.15 | ) | ||||||||
Earnings Per Share — Diluted: | ||||||||||||||||||
Income (loss) from continuing operations | $ | 0.00 | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) | ||||||||
Discontinued operations | $ | 0.01 | $ | (0.05 | ) | $ | 0.01 | $ | (0.12 | ) | ||||||||
Net income (loss) per common share | $ | 0.01 | $ | (0.08 | ) | $ | 0.01 | $ | (0.15 | ) | ||||||||
* | Anti-dilutive |
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2005 | 2004 | |||||||
Options | 4,806,179 | 6,195,943 | ||||||
Warrants | 3,168,955 | 3,275,000 | ||||||
Convertible Preferred Stock | — | 64,343,513 | ||||||
7,975,134 | 73,814,456 | |||||||
10. | Merger Proposal |
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Table of Contents
11. | Contingencies |
F-84
Table of Contents
/s/ Ernst & Young LLP |
F-85
Table of Contents
January 31, | ||||||||||
2005 | 2004 | |||||||||
(Amounts in | ||||||||||
thousands, except share | ||||||||||
and per share data) | ||||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 1,613 | $ | 678 | ||||||
Accounts receivable, net | 8,435 | 9,242 | ||||||||
Inventory | 17,447 | 17,536 | ||||||||
Prepaid expenses and other | 404 | 334 | ||||||||
Total current assets | 27,899 | 27,790 | ||||||||
Property, plant, and equipment, net | 33,049 | 36,083 | ||||||||
Licensed department agreements | 11,481 | 11,481 | ||||||||
Other | 449 | 491 | ||||||||
Total assets | $ | 72,878 | $ | 75,845 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Accounts payable | $ | 5,466 | $ | 6,721 | ||||||
Accrued wages | 1,741 | 1,055 | ||||||||
Accrued rent expense | 1,283 | 1,272 | ||||||||
Other accrued expenses | 4,326 | 3,260 | ||||||||
Customer deposits | 2,944 | 3,321 | ||||||||
Current portion of senior term loan | 4,225 | 3,641 | ||||||||
Current portion of other long-term debt and capital leases | 1,063 | 2,002 | ||||||||
Total current liabilities | 21,048 | 21,272 | ||||||||
Senior term loan | 2,177 | 5,577 | ||||||||
Subordinated vendor debt | 10,000 | 8,723 | ||||||||
Other long-term debt and capital leases, less current portion | 3,528 | 3,853 | ||||||||
Revolving line of credit | 11,433 | 15,616 | ||||||||
Other long-term liabilities | — | 208 | ||||||||
Shareholders’ Equity: | ||||||||||
Preferred stock, $0.001 par value: | ||||||||||
Authorized shares — 5,000,000, none issued and outstanding | — | — | ||||||||
Common stock, $0.001 par value: | ||||||||||
Authorized shares — 20,000,000 and 15,000,000, issued shares — 15,232,733 and 12,975,416, at January 31, 2005 and 2004, respectively | 15 | 13 | ||||||||
Additional paid-in capital | 29,114 | 24,489 | ||||||||
Accumulated deficit | (4,437 | ) | (3,906 | ) | ||||||
Total shareholders’ equity | 24,692 | 20,596 | ||||||||
Total liabilities and shareholders’ equity | $ | 72,878 | $ | 75,845 | ||||||
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Period from | |||||||||||||
Period from | February 1, 2003 to | ||||||||||||
May 31, 2003 to | May 30, 2003 | ||||||||||||
Year Ended | January 31, 2004 | (Predecessor | |||||||||||
January 31, 2005 | (Successor Period) | Period) | |||||||||||
(Amounts in thousands, except per share data) | |||||||||||||
Net sales | $ | 128,026 | $ | 78,123 | $ | 41,088 | |||||||
Cost of sales | 40,077 | 24,194 | 12,582 | ||||||||||
Gross profit | 87,949 | 53,929 | 28,506 | ||||||||||
Operating expenses: | |||||||||||||
Selling, general, and administrative expenses | 79,692 | 51,783 | 25,486 | ||||||||||
Other charges | — | 430 | 543 | ||||||||||
Depreciation and amortization | 5,174 | 3,356 | 1,549 | ||||||||||
84,866 | 55,569 | 27,578 | |||||||||||
Operating income (loss) | 3,083 | (1,640 | ) | 928 | |||||||||
Interest expense, net | 2,115 | 1,669 | 1,017 | ||||||||||
Income (loss) from continuing operations | 968 | (3,309 | ) | (89 | ) | ||||||||
Loss from discontinued operations | (1,499 | ) | (597 | ) | (227 | ) | |||||||
Net loss | $ | (531 | ) | $ | (3,906 | ) | $ | (316 | ) | ||||
Income (loss) per common share — basic and diluted: | |||||||||||||
Income (loss) from continuing operations | $ | 0.07 | $ | (0.28 | ) | $ | (0.01 | ) | |||||
Loss from discontinued operations | (0.11 | ) | (0.05 | ) | (0.03 | ) | |||||||
Net loss per common share | $ | (0.04 | ) | $ | (0.33 | ) | $ | (0.04 | ) | ||||
Weighted average shares outstanding | 14,068 | 11,999 | 8,193 | ||||||||||
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Common Stock | |||||||||||||||||||||
($0.001 Par Value | |||||||||||||||||||||
per Share) | Additional | Total | |||||||||||||||||||
Paid-In | Accumulated | Shareholders’ | |||||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||
(Amounts in thousands, except share data) | |||||||||||||||||||||
Predecessor Period: | |||||||||||||||||||||
Balance at February 1, 2003 | 7,802,942 | $ | 8 | $ | 6,138 | $ | (1,639 | ) | $ | 4,507 | |||||||||||
Capital contribution | — | — | 543 | — | 543 | ||||||||||||||||
Net loss | — | — | — | (316 | ) | (316 | ) | ||||||||||||||
Balance at May 30, 2003 | 7,802,942 | $ | 8 | $ | 6,681 | $ | (1,955 | ) | $ | 4,734 | |||||||||||
Successor Period: | |||||||||||||||||||||
Balance at May 31, 2003 | 11,697,200 | $ | 12 | $ | 21,870 | $ | — | $ | 21,882 | ||||||||||||
Purchase of common stock | (673,004 | ) | (1 | ) | (1,379 | ) | — | (1,380 | ) | ||||||||||||
Issuance of common stock | 1,951,220 | 2 | 3,998 | — | 4,000 | ||||||||||||||||
Net loss | — | — | — | (3,906 | ) | (3,906 | ) | ||||||||||||||
Balance at January 31, 2004 | 12,975,416 | 13 | 24,489 | (3,906 | ) | 20,596 | |||||||||||||||
Issuance of common stock | 2,257,317 | 2 | 4,625 | — | 4,627 | ||||||||||||||||
Net loss | — | — | — | (531 | ) | (531 | ) | ||||||||||||||
Balance at January 31, 2005 | 15,232,733 | $ | 15 | $ | 29,114 | $ | (4,437 | ) | $ | 24,692 | |||||||||||
F-88
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Period from | Period from | |||||||||||||
May 31, 2003 to | February 1, 2003 to | |||||||||||||
Year Ended | January 31, 2004 | May 30, 2003 | ||||||||||||
January 31, 2005 | (Successor Period) | (Predecessor Period) | ||||||||||||
(Dollars in thousands) | ||||||||||||||
Cash flows from operating activities | ||||||||||||||
Net loss | $ | (531 | ) | $ | (3,906 | ) | $ | (316 | ) | |||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||
Depreciation and amortization | 5,174 | 3,356 | 1,549 | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Accounts receivable | 807 | 116 | (80 | ) | ||||||||||
Inventory | 1,366 | 957 | 707 | |||||||||||
Other | (27 | ) | 214 | (727 | ) | |||||||||
Accounts payable | (1,255 | ) | 1,068 | 840 | ||||||||||
Accrued expenses | 1,554 | (2,009 | ) | (18 | ) | |||||||||
Customer deposits | (377 | ) | 180 | — | ||||||||||
Net cash provided by (used in) operating activities | 6,711 | (24 | ) | 1,955 | ||||||||||
Cash flows from investing activities | ||||||||||||||
Additions/disposals of property, plant, and equipment, net | (1,706 | ) | (1,473 | ) | (436 | ) | ||||||||
Net cash used in investing activities | (1,706 | ) | (1,473 | ) | (436 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||
Net (repayments) borrowings on revolving credit line | (4,183 | ) | 9,334 | (3,745 | ) | |||||||||
Contribution of capital by principal shareholder | — | — | 543 | |||||||||||
Proceeds from issuance of common stock | 4,627 | 4,000 | — | |||||||||||
Proceeds from subordinated debt | — | — | 3,000 | |||||||||||
Purchase of common stock | — | (1,380 | ) | — | ||||||||||
Principal payments on long-term debt and capital leases | (1,398 | ) | (1,002 | ) | (462 | ) | ||||||||
Principal payments on subordinated debt | (300 | ) | (4,250 | ) | — | |||||||||
Principal payments on senior term loan | (2,816 | ) | (4,982 | ) | (400 | ) | ||||||||
Net cash (used in) provided by financing activities | (4,070 | ) | 1,720 | (1,064 | ) | |||||||||
Net change in cash and cash equivalents | 935 | 223 | 455 | |||||||||||
Cash and cash equivalents at beginning of period | 678 | 455 | — | |||||||||||
Cash and cash equivalents at end of period | $ | 1,613 | $ | 678 | $ | 455 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||
Interest paid | $ | 2,089 | $ | 1,722 | $ | 962 | ||||||||
Supplemental schedule of noncash investing and financing activities: | ||||||||||||||
Inventory acquired through vendor subordinated debt | $ | 1,277 | $ | 1,723 | $ | — | ||||||||
Purchases of property, plant, and equipment financed through capital lease obligations and other indebtedness | $ | 434 | $ | 877 | $ | 7 | ||||||||
F-89
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1. | Organization and Basis of Presentation |
Principles of Consolidation |
2. | Significant Accounting Policies |
Use of Estimates |
Revenue Recognition |
Cash and Cash Equivalents |
Fair Value of Financial Instruments |
Advertising |
F-90
Table of Contents
Inventory |
Property, Plant, and Equipment |
Licensed Department Agreements |
Long Lived Assets |
Store Openings and Closings |
Stock-Based Compensation |
F-91
Table of Contents
January 31, | Successor | |||||||
2005 | Period | |||||||
Expected life of the award | 3.9 years | 5 years | ||||||
Dividend yield | 0% | 0% | ||||||
Risk-free interest rate | 2.58% | 5% |
January 31, | Successor | |||||||
2005 | Period | |||||||
Net loss as reported | $ | (531 | ) | $ | (3,906 | ) | ||
Pro forma compensation expense | (125 | ) | (56 | ) | ||||
Pro forma net loss | $ | (656 | ) | $ | (3,962 | ) | ||
Basic and diluted loss per share as reported | $ | (0.04 | ) | $ | (0.33 | ) | ||
Pro forma compensation cost per share | (0.01 | ) | (0.00 | ) | ||||
Pro forma net loss per share | $ | (0.05 | ) | $ | (0.33 | ) | ||
Earnings Per Share |
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3. | Acquisition |
Purchase price | $ | 13,016 | ||
Transaction costs | 1,043 | |||
Total consideration | 14,059 | |||
Fair value of identifiable tangible assets | 2,578 | |||
Licensed department agreements | $ | 11,481 | ||
Revenues | $ | 41,344 | ||
Net loss | $ | (281 | ) | |
4. | Discontinued Operations |
January 31, | Successor | Predecessor | ||||||||||
2005 | Period | Period | ||||||||||
Net sales | $ | 5,195 | $ | 4,199 | $ | 3,028 | ||||||
Cost of sales | 1,642 | 1,339 | 965 | |||||||||
Gross profit | 3,553 | 2,860 | 2,063 | |||||||||
Operating expenses: | ||||||||||||
Selling, general, and administrative expenses | 5,052 | 3,457 | 2,290 | |||||||||
Loss from discontinued operations | $ | (1,499 | ) | $ | (597 | ) | $ | (227 | ) | |||
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5. | Property, Plant, and Equipment |
January 31, | ||||||||
2005 | 2004 | |||||||
Land and buildings | $ | 7,039 | $ | 6,972 | ||||
Leasehold improvements | 1,818 | 1,937 | ||||||
Machinery and equipment | 10,590 | 9,901 | ||||||
Data processing equipment and related capitalized costs | 15,275 | 14,478 | ||||||
Furniture and fixtures | 6,708 | 6,151 | ||||||
41,430 | 39,439 | |||||||
Less accumulated depreciation | 8,381 | 3,356 | ||||||
$ | 33,049 | $ | 36,083 | |||||
6. | Long Term Debt |
January 31, | ||||||||
2005 | 2004 | |||||||
Senior Term Loan with Commerce Bank, N.A. Requires monthly payments of interest at 9% and quarterly principal payments based on a graduated schedule ranging from $400,000 to $925,000 with the final payment due in October 2006. The loan is secured by substantially all assets of the Company. | $ | 6,402 | $ | 9,218 | ||||
$17,500,000 Revolving Line of Credit with Commerce Bank, N.A., which expires on October 31, 2006. Interest is payable monthly at the lower of prime plus 150 basis points, or 30-day LIBOR plus 375 basis points (6.31% at January 31, 2005). The rate cannot drop below 5.5%. The revolving line of credit is secured by substantially all assets of the Company. | 11,433 | 15,616 | ||||||
Vendor I Subordinated Note due November 2007. Requires quarterly interest payments at 6.0%. The entire principal balance is due on November 1, 2007. | 4,000 | 4,000 | ||||||
Vendor II Subordinated Note due January 2008. Requires quarterly interest payments at 6%. The entire principal balance is due on January 31, 2008. | 3,000 | 3,000 | ||||||
Vendor III Subordinated Note due April 2007. Requires quarterly interest payments at 6% which increases to 16.0% in certain cases as defined below. The entire principal balance is due on April 15, 2007. | 3,000 | 1,723 | ||||||
Subordinated Note payable to the Chief Executive Officer is due October 2005. This note is noninterest bearing and requires monthly payments of $25,000. | 200 | 500 | ||||||
Other | 3,696 | 4,165 | ||||||
31,731 | 38,222 | |||||||
Less current portion | 4,944 | 4,923 | ||||||
$ | 26,787 | $ | 33,299 | |||||
F-94
Table of Contents
Year ended January 31, | |||||
2006 | $ | 4,944 | |||
2007 | 13,988 | ||||
2008 | 10,182 | ||||
2009 | 175 | ||||
2010 | 415 | ||||
Thereafter | 2,027 | ||||
$ | 31,731 | ||||
7. | Lease Commitments |
F-95
Table of Contents
Capital | Operating | |||||||
Leases | Leases | |||||||
Year ended January 31, | ||||||||
2006 | $ | 431 | $ | 389 | ||||
2007 | 234 | 188 | ||||||
2008 | 74 | 133 | ||||||
2009 | 45 | 98 | ||||||
2010 | 29 | 55 | ||||||
Total lease payments | 813 | $ | 863 | |||||
Less amount representing interest | 118 | |||||||
Present value of minimum capitalized lease obligations | 695 | |||||||
Less current portion | 344 | |||||||
Long-term portion | $ | 351 | ||||||
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Table of Contents
8. | Income Taxes |
January 31, | |||||||||
2005 | 2004 | ||||||||
Deferred tax assets: | |||||||||
Net operating loss carryforward | $ | 7,777 | $ | 7,974 | |||||
Inventory costs | 794 | 889 | |||||||
Alternative Minimum Tax Credit Carryover | 261 | 261 | |||||||
Other | 2,374 | 1,848 | |||||||
Total deferred tax assets | 11,206 | 10,972 | |||||||
Valuation allowance | (1,051 | ) | (620 | ) | |||||
Net deferred tax assets | 10,155 | 10,352 | |||||||
Deferred tax liability: | |||||||||
Depreciation | 5,531 | 5,728 | |||||||
Licensed department agreements | 4,363 | 4,363 | |||||||
Net deferred tax asset | $ | 261 | $ | 261 | |||||
9. | Shareholders’ Equity |
10. | Stock Options and Warrants |
F-97
Table of Contents
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
Options outstanding at May 31, 2003 | — | $ | — | |||||
Options granted | 555,000 | $ | 3.17 | |||||
Options outstanding at January 31, 2004 | 555,000 | $ | 3.17 | |||||
Options granted | 500,000 | $ | 2.05 | |||||
Options outstanding at January 31, 2005 | 1,055,000 | $ | 2.62 | |||||
Option exercisable at end of period | 925,000 | $ | 2.54 | |||||
11. | Commitments and Contingencies |
12. | Segment Information |
F-98
Table of Contents
United States | Canada | Consolidated | ||||||||||
As of and for the year ended January 31, 2005 | ||||||||||||
Sales to customers | $ | 121,516 | $ | 6,510 | $ | 128,026 | ||||||
Operating income | 2,969 | 114 | 3,083 | |||||||||
Property, plant, and equipment, net | 31,435 | 1,614 | 33,049 | |||||||||
As of and for the Successor Period | ||||||||||||
Sales to customers | $ | 74,441 | $ | 3,682 | $ | 78,123 | ||||||
Operating income (loss) | (1,475 | ) | (165 | ) | (1,640 | ) | ||||||
Property, plant, and equipment, net | 34,645 | 1,438 | 36,083 | |||||||||
Predecessor Period | ||||||||||||
Sales to customers | $ | 39,367 | $ | 1,721 | $ | 41,088 | ||||||
Operating income | 1,003 | (75 | ) | 928 |
13. | Employee Benefit Plan |
14. | Certain Relationships and Related Party Transactions |
F-99
Table of Contents
15. | Other Charges |
16. | Subsequent Events |
F-100
Table of Contents
/s/ Ernst & Young LLP |
F-101
Table of Contents
(In thousands) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Accounts receivable, net of allowances of $105 | $ | 10,056 | ||||
Amount due from vendor | 3,000 | |||||
Inventory | 16,274 | |||||
Prepaid expenses and other | 375 | |||||
Total current assets | 29,705 | |||||
Property, plant, and equipment, net | 36,453 | |||||
Other | 516 | |||||
Total assets | $ | 66,674 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 4,394 | ||||
Accrued acquisition costs | 392 | |||||
Accrued wages | 1,061 | |||||
Accrued rent expense | 1,164 | |||||
Other accrued expenses | 4,656 | |||||
Current portion of senior term loan | 1,875 | |||||
Current portion of subordinated vendor debt | 4,000 | |||||
Current portion of other long-term debt and capital leases | 1,344 | |||||
Total current liabilities | 18,886 | |||||
Senior term loan | 12,725 | |||||
Subordinated vendor debt | 7,000 | |||||
Other subordinated debt | 4,436 | |||||
Other long-term debt and capital leases, less current portion | 4,556 | |||||
Revolving line of credit | 14,324 | |||||
Other long-term liabilities | 240 | |||||
Shareholders’ equity: | ||||||
Common stock, $0.001 par value: | ||||||
Authorized shares — 15,000,000, issued and outstanding shares — 7,802,942 | 8 | |||||
Additional paid-in capital | 6,138 | |||||
Accumulated deficit | (1,639 | ) | ||||
Total shareholders’ equity | 4,507 | |||||
Total liabilities and shareholders’ equity | $ | 66,674 | ||||
F-102
Table of Contents
Period from | Period from | ||||||||
November 1, 2002 to | February 1, 2002 to | ||||||||
January 31, 2003 | October 31, 2002 | ||||||||
(Successor Period) | (Predecessor Period) | ||||||||
(In thousands, except per share amounts) | |||||||||
Net sales | $ | 26,336 | $ | 92,035 | |||||
Cost of sales | 8,552 | 27,736 | |||||||
Gross profit | 17,784 | 64,299 | |||||||
Operating expenses: | |||||||||
Selling, general, and administrative expenses | 17,116 | 59,886 | |||||||
Other charges | — | 1,344 | |||||||
Depreciation and amortization | 1,134 | 4,278 | |||||||
18,250 | 65,508 | ||||||||
Operating loss | (466 | ) | (1,209 | ) | |||||
Interest expense | 770 | 575 | |||||||
Loss before income tax provision and discontinued operations | (1,236 | ) | (1,784 | ) | |||||
Income tax provision | — | 33 | |||||||
Loss before discontinued operations | (1,236 | ) | (1,817 | ) | |||||
Loss from discontinued operations | (403 | ) | (1,210 | ) | |||||
Net loss | $ | (1,639 | ) | $ | (3,027 | ) | |||
Loss per common share — basic and diluted: | |||||||||
Loss from continuing operations | $ | (0.15 | ) | $ | (0.23 | ) | |||
Discontinued operations | (0.05 | ) | (0.16 | ) | |||||
Net loss per common share | $ | (0.20 | ) | $ | (0.39 | ) | |||
Weighted average shares outstanding | 8,193 | 7,804 | |||||||
F-103
Table of Contents
Common Stock | ||||||||||||||||||||
($0.01 Par Value | ||||||||||||||||||||
per Share) | Additional | Total | ||||||||||||||||||
Paid-In | Accumulated | Shareholders’ | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
(Dollars in thousands, except share data) | ||||||||||||||||||||
Predecessor Period | ||||||||||||||||||||
Balance at January 31, 2002 | 7,802,942 | $ | 78 | $ | 115,765 | $ | (66,743 | ) | $ | 49,100 | ||||||||||
Issuance of stock and warrants | — | — | 344 | — | 344 | |||||||||||||||
Net loss | — | — | — | (3,027 | ) | (3,027 | ) | |||||||||||||
Balance at October 31, 2002 | 7,802,942 | $ | 78 | $ | 116,109 | $ | (69,770 | ) | $ | 46,417 | ||||||||||
Common Stock | ||||||||||||||||||||
($0.001 Par Value | ||||||||||||||||||||
per Share) | Additional | Total | ||||||||||||||||||
Paid-In | Accumulated | Shareholders’ | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
(Dollars in thousands, except share data) | ||||||||||||||||||||
Successor Period | ||||||||||||||||||||
Balance at November 1, 2002 | 7,802,942 | $ | 8 | $ | 6,138 | $ | — | $ | 6,146 | |||||||||||
Net loss | — | — | — | (1,639 | ) | (1,639 | ) | |||||||||||||
Balance at January 31, 2003 | 7,802,942 | $ | 8 | $ | 6,138 | $ | (1,639 | ) | $ | 4,507 | ||||||||||
F-104
Table of Contents
Period from | Period from | |||||||||
November 1, 2002 to | February 1, 2002 to | |||||||||
January 31, 2003 | October 31, 2002 | |||||||||
(Successor Period) | (Predecessor Period) | |||||||||
(Dollars in thousands) | ||||||||||
Cash flows from operating activities | ||||||||||
Net loss | $ | (1,639 | ) | $ | (3,027 | ) | ||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||
Depreciation and amortization | 1,134 | 4,278 | ||||||||
Stock compensation expense | — | 344 | ||||||||
Asset write-offs on discontinued operations | 74 | 77 | ||||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | (186 | ) | 541 | |||||||
Inventory | 617 | (1,396 | ) | |||||||
Other | 26 | (1,267 | ) | |||||||
Accounts payable | (1,888 | ) | 5,412 | |||||||
Accrued acquisition costs | (1,871 | ) | — | |||||||
Accrued expenses | (1,050 | ) | 1,229 | |||||||
Net cash (used in) provided by operating activities | (4,783 | ) | 6,191 | |||||||
Cash flows from investing activities | ||||||||||
Additions/disposals of property, plant, and equipment, net | (256 | ) | (1,681 | ) | ||||||
Net cash used in investing activities | (256 | ) | (1,681 | ) | ||||||
Cash flows from financing activities | ||||||||||
Net borrowings (payments) on revolving credit line | 5,293 | (2,882 | ) | |||||||
Principal payments on long-term debt and capital leases | (640 | ) | (1,199 | ) | ||||||
Principal payments on senior term loan | (400 | ) | — | |||||||
Net cash provided by (used in) financing activities | 4,253 | (4,081 | ) | |||||||
Net change in cash | (786 | ) | 429 | |||||||
Cash at beginning of period | 786 | 357 | ||||||||
Cash at end of period | $ | — | $ | 786 | ||||||
Supplemental disclosure of cash flow information | ||||||||||
Interest paid | $ | 706 | $ | 573 | ||||||
Supplemental schedule of noncash investing and financing activities | ||||||||||
Inventory acquired through vendor subordinated debt | $ | 3,000 | $ | — | ||||||
Purchases of property, plant, and equipment financed through capital lease obligations and other indebtedness | $ | 555 | $ | 480 | ||||||
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1. | Organization and Basis of Presentation |
Principles of Consolidation |
2. | Significant Accounting Policies |
Use of Estimates |
Revenue Recognition |
Cash and Cash Equivalents |
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Fair Value of Financial Instruments |
Advertising |
Inventory |
Property, Plant, and Equipment |
Long Lived Assets |
Store Openings and Closings |
Stock-Based Compensation |
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Earnings Per Share |
Reclassification |
3. | Acquisition |
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4. | Property, Plant, and Equipment |
January 31, | ||||
2003 | ||||
Land and buildings | $ | 7,052 | ||
Leasehold improvements | 1,938 | |||
Machinery and equipment | 8,021 | |||
Data processing equipment and related capitalized costs | 14,420 | |||
Furniture and fixtures | 6,151 | |||
37,582 | ||||
Less accumulated depreciation | 1,129 | |||
$ | 36,453 | |||
5. | Long Term Debt |
January 31, | ||||
2003 | ||||
Senior Term Loan with Commerce Bank, N.A. Requires monthly payments of interest at 9% and quarterly principal payments based on a graduated schedule ranging from $400,000 to $975,000 with the final payment on October 31, 2007. The loan is secured by substantially all assets of the Company. | $ | 14,600 | ||
$17,500,000 Revolving Line of Credit with Commerce Bank, N.A., which expires on October 31, 2004. Interest is payable monthly at the lower of prime plus 150 basis points, or 30-day LIBOR, plus 375 basis points. The rate cannot drop below 5.5%. The revolving line of credit is secured by substantially all the assets of the Company. | 14,324 | |||
Vendor I Subordinated Note due December 2003. Requires quarterly interest payments at 8.75%. The entire principal balance is due on December 1, 2003. | 4,000 | |||
Vendor II Subordinated Note due November 2007. Requires monthly interest payments at 6.0%. The entire principal balance is due on November 1, 2007. | 4,000 | |||
Vendor III Subordinated Note due January 2008. Requires quarterly interest payments at 6.0%. The entire principal balance is due on January 31, 2008. | 3,000 | |||
Management Subordinated Notes due October 2007. Requires monthly interest payments at prime plus 1% (rate at January 31, 2003 was 5.25%). The entire principal balance is due on October 30, 2007. | 3,400 | |||
Management Subordinated Note due October 2007. This note is non-interest bearing and the entire principal balance is due on October 30, 2007. | 1,036 | |||
Other | 3,743 | |||
48,103 | ||||
Less current portion | 6,224 | |||
$ | 41,879 | |||
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Year ended January 31, | |||||
2004 | $ | 6,224 | |||
2005 | 17,905 | ||||
2006 | 3,563 | ||||
2007 | 3,829 | ||||
2008 | 14,332 | ||||
Thereafter | 2,250 | ||||
$ | 48,103 | ||||
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6. | Lease Commitments |
Capital | Operating | ||||||||
Leases | Leases | ||||||||
Year ended January 31, | |||||||||
2004 | $ | 1,109 | $ | 608 | |||||
2005 | 789 | 343 | |||||||
2006 | 340 | 161 | |||||||
2007 | 202 | 42 | |||||||
2008 | 11 | 69 | |||||||
Total lease payments | 2,451 | $ | 1,223 | ||||||
Less amount representing interest | 294 | ||||||||
Present value of minimum capitalized lease payments | 2,157 | ||||||||
Less current portion | 995 | ||||||||
Long-term portion | $ | 1,162 | |||||||
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7. | Income Taxes |
January 31, | |||||
2003 | |||||
Deferred tax assets: | |||||
Net operating loss carryover | $ | 5,200 | |||
Inventory costs | 1,013 | ||||
Alternative Minimum Tax Credit Carryover | 261 | ||||
Other | 2,668 | ||||
Total deferred tax assets | 9,142 | ||||
Valuation allowance | (4,418 | ) | |||
Net deferred tax assets | 4,724 | ||||
Deferred tax liability: | |||||
Depreciation | 4,463 | ||||
Net deferred tax asset | $ | 261 | |||
8. | Discontinued Operations |
Successor | Predecessor | ||||||||
Period | Period | ||||||||
Net sales | $ | 2,620 | $ | 11,026 | |||||
Cost of sales | 888 | 3,488 | |||||||
Gross profit | 1,732 | 7,538 | |||||||
Operating expenses: | |||||||||
Selling, general, and administrative expenses | 2,135 | 8,748 | |||||||
Loss from discontinued operations | $ | (403 | ) | $ | (1,210 | ) | |||
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9. | Commitments and Contingencies |
10. | Segment Information |
United States | Canada | Consolidated | ||||||||||
(In thousands) | ||||||||||||
As of January 31, 2003 and for the Successor Period | ||||||||||||
Sales to customers | $ | 25,295 | $ | 1,041 | $ | 26,336 | ||||||
Operating loss | (342 | ) | (124 | ) | (466 | ) | ||||||
Property, plant, and equipment, net | 33,651 | 2,802 | 36,453 | |||||||||
Predecessor Period | ||||||||||||
Sales to customers | $ | 88,656 | $ | 3,379 | $ | 92,035 | ||||||
Operating loss | (658 | ) | (551 | ) | (1,209 | ) |
11. | Employee Benefit Plan |
12. | Certain Relationships and Related Party Transactions |
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13. | Stock Options and Warrants |
14. | Other Charges |
15. | Subsequent Events |
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October 31, | January 31, | |||||||||
2005 | 2005 | |||||||||
(Amounts in thousands, | ||||||||||
except share and | ||||||||||
per share data) | ||||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash | $ | 1,713 | $ | 1,613 | ||||||
Accounts receivable | 8,294 | 8,435 | ||||||||
Inventory | 19,006 | 17,447 | ||||||||
Prepaid expenses and other | 441 | 404 | ||||||||
Total current assets | 29,454 | 27,899 | ||||||||
Property, plant, and equipment, net | 32,026 | 33,049 | ||||||||
Licensed department agreements | 11,481 | 11,481 | ||||||||
Other | 427 | 449 | ||||||||
Total assets | $ | 73,388 | $ | 72,878 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Accounts payable — trade | $ | 6,428 | $ | 5,466 | ||||||
Accrued wages | 2,095 | 1,741 | ||||||||
Accrued rent | 1,111 | 1,283 | ||||||||
Other accrued expenses | 4,051 | 4,326 | ||||||||
Customer deposits | 4,260 | 2,944 | ||||||||
Current portion of senior term loan | 3,927 | 4,225 | ||||||||
Current portion of other long-term debt and capital leases | 948 | 1,063 | ||||||||
Total current liabilities | 22,820 | 21,048 | ||||||||
Senior term loan | 0 | 2,177 | ||||||||
Subordinated vendor debt | 10,000 | 10,000 | ||||||||
Other long-term debt and capital leases, less current portion | 3,720 | 3,528 | ||||||||
Revolving line of credit | 10,047 | 11,433 | ||||||||
Shareholders’ Equity: | ||||||||||
Common stock, $0.001 par value: | ||||||||||
Authorized shares — 20,000,000, issued and outstanding shares — 15,476,733 and 15,232,733 at October 31 and January 31, 2005, respectively | 15 | 15 | ||||||||
Additional paid-in capital | 29,614 | 29,114 | ||||||||
Accumulated deficit | (2,828 | ) | (4,437 | ) | ||||||
Total shareholders’ equity | 26,801 | 24,692 | ||||||||
Total liabilities and shareholders’ equity | $ | 73,388 | $ | 72,878 | ||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||||
October 31, | October 31, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||||
Net sales | $ | 35,089 | $ | 31,552 | $ | 107,785 | $ | 95,043 | ||||||||||
Cost of sales | 11,064 | 9,653 | 33,933 | 29,604 | ||||||||||||||
Gross profit | 24,025 | 21,899 | 73,852 | 65,439 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Selling, general, and administrative expenses | 22,530 | 19,870 | 66,833 | 59,602 | ||||||||||||||
Depreciation and amortization | 1,362 | 1,280 | 4,013 | 3,839 | ||||||||||||||
Operating income (loss) | 133 | 749 | 3,006 | 1,998 | ||||||||||||||
Interest expense, net | 429 | 528 | 1,264 | 1,615 | ||||||||||||||
Income (loss) before income tax provision and discontinued operations | (296 | ) | 221 | 1,742 | 383 | |||||||||||||
Income tax provision | 22 | 12 | 48 | 33 | ||||||||||||||
Income (loss) from continuing operations | (318 | ) | 209 | 1,694 | 350 | |||||||||||||
Loss from discontinued operations (net of tax) | (61 | ) | (281 | ) | (86 | ) | (779 | ) | ||||||||||
Net income (loss) | $ | (379 | ) | $ | (72 | ) | $ | 1,608 | $ | (429 | ) | |||||||
Income (loss) per common share — basic and diluted: | ||||||||||||||||||
Income (loss) from continuing operations | $ | (.02 | ) | $ | .01 | $ | .11 | $ | .03 | |||||||||
Loss from discontinued operations | (.00 | ) | (.02 | ) | (.01 | ) | (.06 | ) | ||||||||||
Net income (loss) per common share | $ | (.02 | ) | $ | (.01 | ) | $ | .10 | $ | (.03 | ) | |||||||
Weighted average shares outstanding | 15,867 | 14,097 | 15,828 | 13,974 | ||||||||||||||
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Nine Months Ended | ||||||||||
October 31, | ||||||||||
2005 | 2004 | |||||||||
(Dollars in thousands) | ||||||||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | 1,608 | $ | (429 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 4,013 | 3,839 | ||||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 141 | (67 | ) | |||||||
Inventory | (1,559 | ) | 1,075 | |||||||
Other | (15 | ) | (110 | ) | ||||||
Accounts payable — trade | 962 | (1,787 | ) | |||||||
Customer deposits | 1,317 | 852 | ||||||||
Accrued expenses | (92 | ) | 2,670 | |||||||
Net cash provided by operating activities | 6,375 | 6,043 | ||||||||
Cash flows from investing activities: | ||||||||||
Additions to property, plant, and equipment, net | (1,977 | ) | (1,260 | ) | ||||||
Net cash used in investing activities | (1,977 | ) | (1,260 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Net borrowings (payments) on revolving credit line | (1,386 | ) | (2,387 | ) | ||||||
Issuance of common stock | 500 | 1,500 | ||||||||
Principal payments on long-term debt and capital leases | (737 | ) | (1,055 | ) | ||||||
Principal payments on sub debt | (200 | ) | (225 | ) | ||||||
Principal payments on senior term loan | (2,475 | ) | (2,141 | ) | ||||||
Net cash used in financing activities | (4,298 | ) | (4,308 | ) | ||||||
Net increase (decrease) in cash | 100 | 475 | ||||||||
Cash at beginning of period | 1,613 | 678 | ||||||||
Cash at end of period | $ | 1,713 | $ | 1,153 | ||||||
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1. | Basis of Financial Statement Presentation |
2. | Significant Accounting Policies and Use of Estimates |
3. | Stock-Based Compensation |
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net income (loss) as reported | $ | (379 | ) | $ | (72 | ) | $ | 1,608 | $ | (429 | ) | |||||
Pro forma compensation expense | (61 | ) | (11 | ) | (183 | ) | (33 | ) | ||||||||
Pro forma net income (loss) | $ | (440 | ) | $ | (83 | ) | $ | 1,425 | $ | (462 | ) | |||||
Basic and diluted loss per share as reported | $ | (0.02 | ) | $ | (0.01 | ) | $ | 0.10 | $ | (0.03 | ) | |||||
Pro forma compensation cost per share | (0.00 | ) | (0.00 | ) | (0.01 | ) | (0.00 | ) | ||||||||
Pro forma net loss per share | $ | (0.02 | ) | $ | (0.01 | ) | $ | 0.09 | $ | (0.03 | ) | |||||
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4. | Income Taxes |
5. | Discontinued Operations |
Three Months | Nine Months | |||||||||||||||
Ended October 31, | Ended October 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net sales | $ | 0 | $ | 1,215 | $ | 170 | $ | 3,971 | ||||||||
Cost of sales | 0 | 371 | 55 | 1,255 | ||||||||||||
Gross profit | 0 | 844 | 115 | 2,716 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general, and administrative expenses | 61 | 1,125 | 201 | 3,495 | ||||||||||||
Loss from discontinued operations | $ | (61 | ) | $ | (281 | ) | $ | (86 | ) | $ | (779 | ) | ||||
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6. | Pending Merger |
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Page | ||||||
ARTICLE I. THE MERGER | ||||||
SECTION 1.01 | The Merger | A-1 | ||||
SECTION 1.02 | Closing | A-1 | ||||
SECTION 1.03 | Effective Time | A-1 | ||||
SECTION 1.04 | Effect of the Merger | A-2 | ||||
SECTION 1.05 | Certificate of Incorporation and By-laws | A-2 | ||||
SECTION 1.06 | Directors | A-2 | ||||
SECTION 1.07 | Officers | A-2 | ||||
ARTICLE II. EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES | ||||||
SECTION 2.01 | Effect on Capital Stock | A-2 | ||||
SECTION 2.02 | Exchange of Certificates | A-3 | ||||
SECTION 2.03 | Federal Income Tax Treatment | A-5 | ||||
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY | ||||||
SECTION 3.01 | Organization, Standing and Power | A-5 | ||||
SECTION 3.02 | The Company Subsidiaries; Equity Interests | A-5 | ||||
SECTION 3.03 | Capital Structure | A-5 | ||||
SECTION 3.04 | Authority; Execution and Delivery; Enforceability | A-6 | ||||
SECTION 3.05 | No Conflicts; Consents | A-7 | ||||
SECTION 3.06 | Company SEC Documents; Undisclosed Liabilities | A-7 | ||||
SECTION 3.07 | Absence of Certain Changes or Events | A-8 | ||||
SECTION 3.08 | Information Supplied | A-8 | ||||
SECTION 3.09 | Litigation | A-9 | ||||
SECTION 3.10 | Compliance With Applicable Laws | A-9 | ||||
SECTION 3.11 | Environmental | A-9 | ||||
SECTION 3.12 | Intellectual Property | A-10 | ||||
SECTION 3.13 | Employee Benefit Plans | A-11 | ||||
SECTION 3.14 | Labor Matters | A-12 | ||||
SECTION 3.15 | Material Agreements | A-12 | ||||
SECTION 3.16 | Properties | A-14 | ||||
SECTION 3.17 | Tax Matters | A-15 | ||||
SECTION 3.18 | Products Liability | A-15 | ||||
SECTION 3.19 | Brokers | A-16 | ||||
SECTION 3.20 | Opinion of Financial Advisor | A-16 |
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Page | ||||||
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT | ||||||
SECTION 4.01 | Organization, Standing and Power | A-16 | ||||
SECTION 4.02 | The Parent Subsidiaries; Equity Interests | A-16 | ||||
SECTION 4.03 | Capital Structure | A-17 | ||||
SECTION 4.04 | Authority; Execution and Delivery; Enforceability | A-17 | ||||
SECTION 4.05 | No Conflicts; Consents | A-18 | ||||
SECTION 4.06 | Parent SEC Documents; Undisclosed Liabilities | A-18 | ||||
SECTION 4.07 | Absence of Certain Changes or Events | A-19 | ||||
SECTION 4.08 | Form S-4; Joint Proxy Statement | A-19 | ||||
SECTION 4.09 | Opinion of Financial Advisor | A-19 | ||||
SECTION 4.10 | Litigation | A-19 | ||||
SECTION 4.11 | Compliance with Applicable Laws | A-19 | ||||
SECTION 4.12 | Ownership of Company Shares | A-20 | ||||
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS | ||||||
SECTION 5.01 | Covenants Relating to Conduct of Business | A-20 | ||||
SECTION 5.02 | Other Actions | A-23 | ||||
SECTION 5.03 | Advice of Changes | A-23 | ||||
ARTICLE VI. ADDITIONAL AGREEMENTS | ||||||
SECTION 6.01 | Preparation of the Form S-4 and Joint Proxy Statement | A-23 | ||||
SECTION 6.02 | Access to Information | A-24 | ||||
SECTION 6.03 | Reasonable Efforts; Notification | A-24 | ||||
SECTION 6.04 | Public Announcements | A-25 | ||||
SECTION 6.05 | Tax Free Reorganization Treatment | A-25 | ||||
SECTION 6.06 | Conversion of Preferred Stock | A-25 | ||||
SECTION 6.07 | Services and Support Agreement | A-25 | ||||
SECTION 6.08 | Section 16b-3 | A-25 | ||||
SECTION 6.09 | American Stock Exchange | A-25 | ||||
SECTION 6.10 | Indemnification | A-25 | ||||
ARTICLE VII. CONDITIONS PRECEDENT | ||||||
SECTION 7.01 | Conditions to Each Party’s Obligation to Effect the Merger | A-26 | ||||
SECTION 7.02 | Conditions to Obligation of Parent and Merger Sub | A-27 | ||||
SECTION 7.03 | Conditions to Obligation of the Company | A-28 | ||||
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER | ||||||
SECTION 8.01 | Termination | A-28 | ||||
SECTION 8.02 | Effect of Termination | A-29 | ||||
SECTION 8.03 | Amendment | A-29 | ||||
SECTION 8.04 | Extension; Waiver | A-29 |
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Page | ||||||
ARTICLE IX. GENERAL PROVISIONS | ||||||
SECTION 9.01 | Nonsurvival of Representations and Warranties | A-29 | ||||
SECTION 9.02 | Fees and Expenses | A-29 | ||||
SECTION 9.03 | Notices | A-29 | ||||
SECTION 9.04 | Definitions | A-30 | ||||
SECTION 9.05 | Interpretation; Disclosure Letters | A-31 | ||||
SECTION 9.06 | Severability | A-31 | ||||
SECTION 9.07 | Counterparts; Facsimile | A-31 | ||||
SECTION 9.08 | Entire Agreement; No Third-Party Beneficiaries | A-32 | ||||
SECTION 9.09 | Governing Law | A-32 | ||||
SECTION 9.10 | Assignment | A-32 | ||||
SECTION 9.11 | Disputes; Waiver of Jury Trial | A-32 |
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(1) Subject to Section 2.01(b), (w) each share of Company Common Stock issued upon conversion of the Series B Preferred Stock (as defined in Section 3.03) as a result of the dividends thereon from and after June 30, 2005 shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and no Merger Consideration shall be delivered or deliverable in exchange therefor, (x) each other share of Company Common Stock owned by Dr. Yimoyines and L. Yimoyines which was issued by the Company from and after the date hereof upon conversion of Preferred Stock (as defined in Section 3.03) pursuant to Section 6.06 shall be converted into the right to receive 0.0403 shares of common stock, par value $0.001 per share, of Parent (the “Parent Common Stock”), (y) each share of Company Common Stock owned by Palisade immediately prior to the Effective Time shall be converted into the right to receive 0.04029244 shares of Parent Common Stock, and (z) each other share of Company Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive 0.0472 shares of Parent Common Stock ((w), (x), (y) and (z) the “Exchange Ratios”). | |
(2) If, between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock or Company Common Stock shall have been changed into a different number of shares |
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or a different class by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or a stock dividend thereon shall be declared with a record date within said period, the Exchange Ratios shall be correspondingly adjusted. |
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(i) No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the conversion of Company Common Stock, and such fractional share interests shall not entitle the owner thereof to vote or to any rights of a holder of Parent Common Stock. | |
(ii) In lieu of any such fractional shares, each holder of Company Common Stock who would otherwise be entitled to such fractional shares shall be entitled to an amount in cash, without interest, rounded to the nearest cent, equal to the product of (A) the amount of the fractional share interest in a share of Parent Common Stock to which such holder is entitled and (B) an amount equal to the average of the closing sale prices for Parent Common Stock on the American Stock Exchange for each of the five consecutive trading days ending with (and including) the trading day which is two days prior to the date of the Effective Time. |
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A-5
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A-6
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A-7
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A-8
Table of Contents
(i) “Environmental Laws” shall mean all Laws relating to pollution or protection of the environment or human health and safety, including, without limitation, Laws relating to Releases (as defined in Section 3.11(a)(iii) below) or threatened Releases of Hazardous Substances (as defined in Section 3.11(a)(ii) below) into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Substances and all Laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances, and all Laws relating to endangered or threatened species of fish, wildlife and plants and the management or use of natural resources. | |
(ii) “Hazardous Substances” shall mean (1) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls and radon gas; (2) any chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “restricted hazardous materials,” “extremely hazardous substances,” “toxic substances,” “contaminants” or “pollutants” or words of similar meaning and regulatory effect; or (3) any other chemical, material or substance, exposure to which is prohibited, limited, or regulated by any applicable Environmental Laws. | |
(iii) “Release” shall mean any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, groundwater or property. | |
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(i) “Company Intellectual Property” means all Intellectual Property owned, singly or jointly, by the Company or any of the Company Subsidiaries; | |
(ii) “Intellectual Property” means all copyrights, copyright registrations and applications, patents and industrial designs, including without limitation any continuations, divisionals,continuations-in-part, renewals, reissues and applications for any of the foregoing, trademarks, service marks, trade names, domain names, designs, logos, emblems, signs or insignia, slogans, other similar designations of source or origin and general intangibles of like nature, together with the goodwill of the business symbolized by any of the foregoing, registrations and applications relating to any of the foregoing, trade secrets, financing and marketing information, technology, know-how, inventions, proprietary processes, formulae, algorithms, models and methodologies, Software (as defined in Section 3.12(a)(iii) below), and similar property anywhere in the world, together with the rights to sue for past infringement thereof; and | |
(iii) “Software” means all computer programs (whether in source code or object code form), databases, compilations and data, and all documentation related to any of the foregoing. |
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A-11
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(i) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K); | |
(ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets, including any license for Software, that provides for either (A) annual payments by or to the Company or any Company Subsidiary of $100,000 or more or (B) aggregate payments by or to the Company or any Company Subsidiary of $500,000 or more; | |
(iii) any limited partnership, joint venture or other unincorporated business organization or similar arrangement or agreement in which the Company or any Company Subsidiary serves as a general partner or otherwise has unlimited liability or any other material similar agreement or arrangement; | |
(iv) any agreement relating to the acquisition or disposition of any business of the Company, any Company Subsidiary or any other person (whether by merger, sale of stock, sale of assets or otherwise); | |
(v) any agreement relating to indebtedness for borrowed money or any guarantee or similar agreement or arrangement relating thereto; | |
(vi) any lease of real property; |
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(vii) any license, franchise or similar agreement material to the Company or any Company Subsidiary, taken as a whole; | |
(viii) any material marketing or other similar agreement and any agreement under which the Company or any Company Subsidiary has granted any exclusive marketing or other right to any person; | |
(ix) any agreement that restricts or prohibits the Company or any Company Subsidiary from competing with any person in any line of business or from competing in, engaging in or entering into any line of business in any area and which would so restrict or prohibit the Company or any Company Subsidiary after the Effective Time; | |
(x) any agreements to which the Company or any Company Subsidiary is a party or otherwise bound which contain provisions (a) granting to any person rights in Intellectual Property used by the Company or any Company Subsidiary; (b) granting to the Company or any Company Subsidiary any rights in Intellectual Property owned or controlled by any person; (c) restricting the Company’s or any Company Subsidiary’s use of Intellectual Property that is used by the Company or any Company Subsidiary; or (d) transferring ownership of Intellectual Property rights to the Company or any Company Subsidiary; | |
(xi) any material agreement containing a “change in control” or similar provisions relating to a change in control of the Company or any Company Subsidiary; | |
(xii) any powers of attorney other than those entered into in the ordinary course of business; | |
(xiii) any agreements material to the Company or any Company Subsidiary taken as a whole pursuant to which the Company or Company Subsidiary is obligated to indemnify any other person; | |
(xiv) any agreement with any Governmental Entity; | |
(xv) any agreement with any current or former officer, director, stockholder, employee, consultant, agent or other representative of the Company or any Company Subsidiary (or with a person in which any of the foregoing is a controlling person); | |
(xvi) any agreement having a duration of six months or more and not terminable without penalty upon 60 days or less prior notice by the Company or any Company Subsidiary that are a party thereto; or | |
(xvii) any agency, broker, exclusive dealing, distributor, dealer, manufacturer, representative, reseller, agency and sales promotion agreements involving payments in excess of $50,000 or any other agreement that compensates any person, other than employees or consultants of the Company or any Company Subsidiary, based on any sales by the Company or any Company Subsidiary. |
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(i) “Lease” means the lease, sublease, license or other agreement relating to the use and/or occupancy of any of the Leased Premises. | |
(ii) “Leased Premises” means all the real property that is leased or operated by the Company and the Company Subsidiaries and used or held for use by the Company or any Company Subsidiary in the operation or conduct of their business. | |
(iii) “Owned Real Property” means all the real property that is owned and used or held for use by the Company and the Company Subsidiaries in the operation or conduct of their business. | |
(iv) “Real Property” means, collectively, the Leased Premises under the Leases and the Owned Real Property. |
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(i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by a wholly owned subsidiary to its security holders, (B) split, combine or reclassify any of its capital stock or other Equity Interests, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or other Equity Interests or (C) purchase, redeem or otherwise acquire any of its shares of capital stock or other Equity Interests, any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, other than, in respect of any of the foregoing clauses (B) or (C), pursuant to the terms of Company Stock Options outstanding as of the date hereof or pursuant to the conversion of Preferred Stock or convertible debt outstanding as of the date hereof; | |
(ii) except in connection with the conversion of Preferred Stock as provided in Section 6.06, issue, deliver, sell or grant (A) any shares of its capital stock or other Equity Interests, (B) any Voting Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Debt, voting securities or convertible or exchangeable securities, (D) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based performance units or (E) any options, warrants, rights, securities, units, commitments, Contracts, arrangements or undertakings of any kind that give any person the right to receive any economic benefits and rights accruing to holders of its or any of its subsidiaries’ capital stock, other than, in respect of any of the foregoing, pursuant to the terms of Company Stock Options outstanding as of the date hereof or pursuant to the conversion of Preferred Stock or convertible debt outstanding as of the date hereof; | |
(iii) amend or otherwise change its certificate of incorporation, by-laws or other comparable charter or organizational documents; | |
(iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any Equity Interest in or business of any person or (B) any material assets, except for purchases of inventory in the ordinary course of business consistent with past practice; | |
(v) (A) grant to any current or former director, officer, independent contractor or employee (each a “Participant”) any loan or increase in compensation, benefits, perquisites or any bonus or award, or pay any bonus to any such person, except to the extent required under employment agreements in effect as of the date hereof or in the ordinary course of business consistent with past practice, (B) grant to any |
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Participant any increase in severance, change in control or termination pay or benefits, except to the extent required under any agreement in effect as of the date hereof, (C) enter into any employment, loan, retention, consulting, indemnification, termination or similar agreement with any Participant, except in the ordinary course of business consistent with past practice, (D) enter into any change of control, severance or similar agreement with any Participant, (E) take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan, except in the ordinary course of business consistent with past practice, (F) establish, adopt, enter into, terminate or amend any collective bargaining agreement or benefit plan, except in the ordinary course of business consistent with past practice, (G) amend, waive or otherwise modify any of the terms of any employee option, warrant or stock option plan or (H) take any action to accelerate any rights or benefits or make any material determinations, under any collective bargaining agreement or benefit plan; | |
(vi) make any change in accounting methods, principles or practices materially affecting its reported consolidated assets, liabilities or results of operations, other than as may have been required by a change in GAAP or any Governmental Entity; | |
(vii) sell, lease, license, transfer, pledge or otherwise dispose of or subject to any Lien any properties or assets that have a fair value, individually, in excess of $100,000 or, in the aggregate, in excess of $1,000,000; | |
(viii) (A) other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date hereof this or any refinancing thereof not to exceed the amount borrowable thereunder, incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities of another person, or (B) make any loans, advances or capital contributions to, or investments in, any other person (other than to or in any direct or indirect wholly owned subsidiary), individually, in excess of $100,000 or, in the aggregate, in excess of $1,000,000; | |
(ix) make or agree to make any new capital expenditure or expenditures other than capital expenditures for emergency repairs necessary to avoid significant disruption to its business consistent with past practices; | |
(x) make any material Tax election or settle or compromise any material Tax Liability or refund, other than tax elections required by Law; | |
(xi) except in the ordinary course of business consistent with past practice, (A) cancel any indebtedness owed to it or waive any of its claims or rights of substantial value or (B) waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it or any of its subsidiaries is a party; | |
(xii) enter into any Contract otherwise addressed in this Section 5.01(a) having a duration of more than one year and total payment obligations of in excess of $1,000,000 (other than Contracts terminable within one year or the renewal, on substantially similar terms, of any Contract existing on the date hereof); | |
(xiii) except in the ordinary course of business consistent with past practice, cancel, terminate or adversely modify or amend any Material Agreement, or waive, release, assign, settle or compromise any material rights or Claims, or any material litigation or arbitration; or | |
(xiv) authorize any of, or commit or agree to take any of, the foregoing actions. |
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(i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by a wholly owned subsidiary to its security holders, (B) split, combine or reclassify any of its capital stock or other Equity Interests, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or other Equity Interests or (C) purchase, redeem or otherwise acquire any of its shares of capital stock or other Equity Interests, any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, other than, in respect of any of the foregoing clauses (B) or (C), pursuant to the terms of Company Stock Options outstanding as of the date hereof or pursuant to the conversion of convertible debt outstanding as of the date hereof, and other than, in respect of the foregoing clause (C), pursuant to the terms of the put option under the Agreement and Plan of Merger, dated August 19, 2002, among Palisade, Palisade Merger Corp. and Parent, as amended; | |
(ii) issue, deliver, sell or grant (A) any shares of its capital stock or other Equity Interests, (B) any Voting Parent Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Parent Debt, voting securities or convertible or exchangeable securities, (D) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based performance units or (E) any options, warrants, rights, securities, units, commitments, Contracts, arrangements or undertakings of any kind that give any person the right to receive any economic benefits and rights accruing to holders of capital stock of Parent, other than (x) pursuant to the terms of Parent stock options or warrants or the conversion of convertible debt in accordance with their present terms, in each case, outstanding as of the date hereof, (y) grants of Parent equity awards and Parent stock options pursuant to existing Parent benefits plans or (z) in connection with the USV Transaction; | |
(iii) amend or otherwise change its certificate of incorporation or by-laws, except to increase the authorized capital stock of Parent; | |
(iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any Equity Interest in or business of any person or (B) any material assets, except for purchases of inventory in the ordinary course of business consistent with past practice and except for the USV Transaction; | |
(v) sell, lease, license, transfer, pledge or otherwise dispose of or subject to any Lien any properties or assets that have a fair value, individually, in excess of $250,000 or, in the aggregate, in excess of $2,500,000; | |
(vi) other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date hereof this or any refinancing thereof not to exceed the amount borrowable thereunder, incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities of another person, except for short-term borrowings incurred in the ordinary course of business consistent with past practice; | |
(vii) except in the ordinary course of business consistent with past practice, (A) cancel any indebtedness owed to it or waive any of its claims or rights of substantial value or (B) waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it or any of its subsidiaries is a party; | |
(viii) authorize any of, or commit or agree to take any of, the foregoing actions. |
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(i) The representations and warranties of Parent contained in this Agreement shall be true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) at and as of the Effective Time of the Merger as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) would not, individually or in the aggregate, result in a Material Adverse Effect on Parent. The Company shall have received a certificate signed on behalf of Parent by an executive officer of Parent to such effect. | |
(ii) The representations and warranties of USV contained in the USV Merger Agreement shall be true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) at and as of the effective time of the merger contemplated thereby as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) would not, individually or in the aggregate, result in a Material Adverse Effect on USV. The Company shall have received, and Palisade shall cause USV to deliver to the Company, a certificate signed on behalf of USV by an executive officer of USV to such effect. | |
(i) the Merger is not consummated on or before December 31, 2005;provided that the right to terminate this Agreement under this Section 8.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or results in, the failure of the Merger to occur on or before such date; or | |
(ii) any Governmental Entity issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; |
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(a) if to Parent or Merger Sub, to |
REFAC | |
One Bridge Plaza | |
Fort Lee, NJ 07024 | |
Attn: Robert L. Tuchman | |
Fax: (201) 585-2020 | |
with a copy to: | |
Skadden, Arps, Slate, Meagher & Flom LLP | |
Four Times Square | |
New York, NY 10036 | |
Attn: Stephen M. Banker | |
Fax: (917) 777-2760 |
(b) if to the Company, to |
OptiCare Health Systems, Inc. | |
87 Grandview Avenue | |
Waterbury, CT 06708 | |
Attn: Christopher J. Walls | |
Fax: (203) 596-2227 | |
with a copy to: | |
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. | |
One Financial Center | |
Boston, MA 02111 | |
Attn: Michael L. Fantozzi | |
Fax: (617) 542-2241 |
An “affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person. | |
“Equity Interest” means any share, capital stock, partnership, member or similar interest in any entity, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable therefor. | |
“knowledge” of any person means what such person (and, if such person is not an individual, such person’s executive officers and any other officer having primary responsibility for the specific matter) knew or should have known after reasonable inquiry. | |
“Liabilities” mean any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated, known or unknown. | |
“Liens” means any mortgage, deed of trust, deed to secure debt, title retention agreement, pledge, lien, encumbrance, security interest, conditional or installment sale agreement, charge or other Claims of third parties of any kind. | |
“Material Adverse Effect” on a person means a material adverse effect on (i) the business, assets, financial condition or results of operations of such person and its subsidiaries, taken as a whole, (ii) the ability of such person to perform its obligations under this Agreement or (iii) the ability of such person to consummate the Merger and the other transactions to be performed or consummated by such person |
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hereunder, in each case other than any state of facts, event, change, effect, development, condition or occurrence relating to (A) the economy in general in the U.S. which do not disproportionately affect such person relative to the other participants in the industry in which it operates or (B) any change in such person’s stock price or trading volume, in and of itself. | |
“Merger Consideration” with respect to any stockholder of the Company shall mean the consideration to be received by such stockholder in the Merger pursuant to Section 2.01 hereof. | |
“Permitted Lien” means (x) any Lien for Taxes not yet due or for Taxes being contested in good faith for which adequate reserves have been made, (y) any mechanics’, materialmen’s, warehousemen’s, contractors’, workmen’s, repairmens’, carriers’ or similar Lien attaching by operation of Law, incurred in the ordinary course of business and securing payments not yet due or delinquent or which are being contested in good faith or (z) any minor imperfection of title which does not have a material impact on the continued use and operation of the property to which such Lien applies. | |
A “person” means any individual, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity. | |
A “subsidiary” of any person means another person in which it owns, directly or indirectly, an amount of the voting securities, other voting ownership or voting partnership interests which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of such entity). | |
“Taxes” means any and all taxes, charges, fees, levies, tariffs, duties, liabilities, impositions or other assessments of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Tax authority or other Governmental Authority, and shall include any Liability for the Taxes of any other person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), or as a transferee or successor, by contract, or otherwise. | |
“Tax Return” means any return, report, declaration, information return or other document (including any related or supporting information) required to be filed with respect to Taxes, including any amendments thereof. |
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REFAC |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman |
Title: | Chief Executive Officer |
OPTICARE MERGER SUB, INC. |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman |
Title: | Chief Executive Officer |
OPTICARE HEALTH SYSTEMS, INC. |
By: | /s/ Christopher J. Walls |
Name: Christopher J. Walls | |
Title: | President and CEO |
/s/ Dr. Dean Yimoyines | |
DR. DEAN YIMOYINES |
/s/ Linda Yimoyines | |
LINDA YIMOYINES |
By: | Palisade Concentrated Holdings, L.L.C., |
General Partner | |
/s/ Steven E. Berman | |
Name: Steven E. Berman |
Title: | Member |
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1. Amendment to Section 8.01(b)(i). Section 8.01(b)(i) is hereby amended and restated in its entirety as follows: |
“the Merger is not consummated on or before April 30, 2006; provided that the right to terminate this Agreement under this Section 8.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or results in, the failure of the Merger to occur on or before such date; or” |
2. Limited Effect. Except as expressly specified herein, the terms and provisions of the Agreement shall continue and remain in full force and effect and shall remain the valid and binding obligation of the parties thereto in accordance with its terms. | |
3. Counterparts. This Amendment may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. | |
4. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof. |
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REFAC |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman |
Title: | Chief Executive Officer |
OPTICARE MERGER SUB, INC. |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman |
Title: | President |
OPTICARE HEALTH SYSTEMS, INC. |
By: | /s/ Christopher J. Walls |
Name: Christopher J. Walls |
Title: | President and Chief Executive Officer |
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ARTICLE I. THE MERGER | B-1 | ||||||
Section 1.01 | The Merger | B-1 | |||||
Section 1.02 | Closing | B-1 | |||||
Section 1.03 | Effective Time | B-1 | |||||
Section 1.04 | Effect of the Merger | B-1 | |||||
Section 1.05 | Certificate of Incorporation and By-laws | B-2 | |||||
Section 1.06 | Directors | B-2 | |||||
Section 1.07 | Officers | B-2 | |||||
ARTICLE II. EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES | B-2 | ||||||
Section 2.01 | Effect on Capital Stock | B-2 | |||||
Section 2.02 | Exchange of Certificates | B-3 | |||||
Section 2.03 | Federal Income Tax Treatment | B-4 | |||||
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY | B-4 | ||||||
Section 3.01 | Organization, Standing and Power | B-4 | |||||
Section 3.02 | The Company Subsidiaries; Equity Interests | B-4 | |||||
Section 3.03 | Capital Structure | B-4 | |||||
Section 3.04 | Authority; Execution and Delivery; Enforceability | B-5 | |||||
Section 3.05 | No Conflicts; Consents | B-6 | |||||
Section 3.06 | Financial Statements; Undisclosed Liabilities | B-6 | |||||
Section 3.07 | Absence of Certain Changes or Events | B-7 | |||||
Section 3.08 | Information Supplied | B-7 | |||||
Section 3.09 | Litigation | B-7 | |||||
Section 3.10 | Compliance With Applicable Laws | B-7 | |||||
Section 3.11 | Environmental | B-7 | |||||
Section 3.12 | Intellectual Property | B-8 | |||||
Section 3.13 | Employee Benefit Plans | B-9 | |||||
Section 3.14 | Labor Matters | B-10 | |||||
Section 3.15 | Material Agreements | B-11 | |||||
Section 3.16 | Properties | B-12 | |||||
Section 3.17 | Tax Matters | B-13 | |||||
Section 3.18 | Products Liability | B-14 | |||||
Section 3.19 | Brokers | B-14 | |||||
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS | B-14 | ||||||
Section 4.01 | Authorization | B-15 | |||||
Section 4.02 | Ownership of Shares | B-15 | |||||
Section 4.03 | Appraisal Rights | B-15 | |||||
Section 4.04 | Acknowledgement | B-15 | |||||
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT | B-15 | ||||||
Section 5.01 | Organization, Standing and Power | B-15 | |||||
Section 5.02 | The Parent Subsidiaries; Equity Interests | B-16 | |||||
Section 5.03 | Capital Structure | B-16 |
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Section 5.04 | Authority; Execution and Delivery; Enforceability | B-16 | |||||
Section 5.05 | No Conflicts; Consents | B-17 | |||||
Section 5.06 | Parent SEC Documents; Undisclosed Liabilities | B-17 | |||||
Section 5.07 | Absence of Certain Changes or Events | B-18 | |||||
Section 5.08 | Form S-4; Proxy Statement | B-18 | |||||
Section 5.09 | Litigation | B-18 | |||||
Section 5.10 | Compliance with Applicable Laws | B-18 | |||||
Section 5.11 | Ownership of Company Shares | B-19 | |||||
Section 5.12 | Brokers | B-19 | |||||
Section 5.13 | Opinion of Financial Advisor | B-19 | |||||
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS | B-19 | ||||||
Section 6.01 | Covenants Relating to Conduct of Business | B-19 | |||||
Section 6.02 | Other Actions | B-22 | |||||
Section 6.03 | Advice of Changes | B-22 | |||||
ARTICLE VII. ADDITIONAL AGREEMENTS | B-22 | ||||||
Section 7.01 | Preparation of the Form S-4 and Proxy Statement | B-22 | |||||
Section 7.02 | Access to Information | B-23 | |||||
Section 7.03 | Reasonable Efforts; Notification | B-23 | |||||
Section 7.04 | Public Announcements | B-23 | |||||
Section 7.05 | Tax Free Reorganization Treatment | B-24 | |||||
Section 7.06 | Indemnification | B-24 | |||||
ARTICLE VIII. CONDITIONS PRECEDENT | B-25 | ||||||
Section 8.01 | Conditions to Each Party’s Obligation to Effect the Merger | B-25 | |||||
Section 8.02 | Conditions to Obligation of Parent and Merger Sub | B-25 | |||||
Section 8.03 | Conditions to Obligation of the Company | B-26 | |||||
ARTICLE IX. TERMINATION, AMENDMENT AND WAIVER | B-26 | ||||||
Section 9.01 | Termination | B-26 | |||||
Section 9.02 | Effect of Termination | B-27 | |||||
Section 9.03 | Amendment | B-27 | |||||
Section 9.04 | Extension; Waiver | B-27 | |||||
ARTICLE X. GENERAL PROVISIONS | B-27 | ||||||
Section 10.01 | Nonsurvival of Representations and Warranties | B-27 | |||||
Section 10.02 | Fees and Expenses | B-27 | |||||
Section 10.03 | Notices | B-27 | |||||
Section 10.04 | Definitions | B-28 | |||||
Section 10.05 | Interpretation | B-29 | |||||
Section 10.06 | Severability | B-30 | |||||
Section 10.07 | Counterparts; Facsimile | B-30 | |||||
Section 10.08 | Entire Agreement; No Third-Party Beneficiaries | B-30 | |||||
Section 10.09 | Governing Law | B-30 | |||||
Section 10.10 | Assignment | B-30 | |||||
Section 10.11 | Disputes; Waiver of Jury Trial | B-30 |
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(1) Other than shares cancelled pursuant to Section 2.01(b), each issued and outstanding share of Company Common Stock outstanding immediately prior to the Effective Time shall be converted into the right to receive 0.4141 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”) (the “Merger Consideration”). | |
(2) If, between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock or Company Common Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or a stock dividend thereon shall be declared with a record date within said period, the Exchange Ratio shall be correspondingly adjusted. |
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(1) No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the conversion of Company Common Stock, and such fractional share interests shall not entitle the owner thereof to vote or to any rights of a holder of Parent Common Stock. | |
(2) In lieu of any such fractional shares, each holder of Company Common Stock who would otherwise be entitled to such fractional shares shall be entitled to an amount in cash, without interest, rounded to the nearest cent, equal to the product of (A) the amount of the fractional share interest in a share of Parent Common Stock to which such holder is entitled and (B) an amount equal to the average of the closing sale prices for Parent Common Stock on the American Stock Exchange for each of the five consecutive trading days ending with (and including) the trading day which is two days prior to the date of the Effective Time. |
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(i) “Environmental Laws” shall mean all Laws relating to pollution or protection of the environment or human health and safety, including, without limitation, Laws relating to Releases (as defined in Section 3.11(a)(iii) below) or threatened Releases of Hazardous Substances (as defined in Section 3.11(a)(ii) below) into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Substances and all Laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances, and all Laws relating to endangered or threatened species of fish, wildlife and plants and the management or use of natural resources. | |
(ii) “Hazardous Substances” shall mean (1) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls and | |
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radon gas; (2) any chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “restricted hazardous materials,” “extremely hazardous substances,” “toxic substances,” “contaminants” or “pollutants” or words of similar meaning and regulatory effect; or (3) any other chemical, material or substance, exposure to which is prohibited, limited, or regulated by any applicable Environmental Laws. | |
(iii) “Release” shall mean any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, groundwater or property. | |
(i) “Company Intellectual Property” means all Intellectual Property owned, singly or jointly, by the Company or any of the Company Subsidiaries; | |
(ii) “Intellectual Property” means all copyrights, copyright registrations and applications, patents and industrial designs, including without limitation any continuations, divisionals,continuations-in-part, renewals, reissues and applications for any of the foregoing, trademarks, service marks, trade names, domain names, designs, logos, emblems, signs or insignia, slogans, other similar designations of source or origin and general intangibles of like nature, together with the goodwill of the business symbolized by any of the foregoing, registrations and applications relating to any of the foregoing, trade secrets, financing and marketing information, technology, know-how, inventions, proprietary processes, formulae, algorithms, models and methodologies, Software (as defined in Section 3.12(a)(iii) below), and similar property anywhere in the world, together with the rights to sue for past infringement thereof; and | |
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(iii) “Software” means all computer programs (whether in source code or object code form), databases, compilations and data, and all documentation related to any of the foregoing. |
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(i) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets, including any license for Software, that provides for either (A) annual payments by the Company or any Company Subsidiary of $100,000 or more or (B) aggregate payments by the Company or any Company Subsidiary of $500,000 or more; | |
(ii) any limited partnership, joint venture or other unincorporated business organization or similar arrangement or agreement in which the Company or any Company Subsidiary serves as a general partner or otherwise has unlimited liability or any other material similar agreement or arrangement; | |
(iii) any agreement relating to the acquisition or disposition of any business of the Company, any Company Subsidiary or any other person (whether by merger, sale of stock, sale of assets or otherwise); | |
(iv) any agreement relating to indebtedness for borrowed money or any guarantee or similar agreement or arrangement relating thereto; | |
(v) any lease of real property; | |
(vi) any license, franchise or similar agreement material to the Company or any Company Subsidiary, taken as a whole; | |
(vii) any material marketing or other similar agreement and any agreement under which the Company or any Company Subsidiary has granted any exclusive marketing or other right to any person; | |
(viii) any agreement that restricts or prohibits the Company or any Company Subsidiary from competing with any person in any line of business or from competing in, engaging in or entering into any line of business in any area and which would so restrict or prohibit the Company or any Company Subsidiary after the Effective Time; | |
(ix) any agreements to which the Company or any Company Subsidiary is a party or otherwise bound which contain provisions (a) granting to any person rights in Intellectual Property used by the Company or any Company Subsidiary; (b) granting to the Company or any Company Subsidiary any rights in Intellectual Property owned or controlled by any person; (c) restricting the Company’s or any Company Subsidiary’s use of Intellectual Property that is used by the Company or any Company Subsidiary; or (d) transferring ownership of Intellectual Property rights to the Company or any Company Subsidiary; | |
(x) any material agreement containing a “change in control” or similar provisions relating to a change in control of the Company or any Company Subsidiary; | |
(xi) any powers of attorney other than those entered into in the ordinary course of business; | |
(xii) any agreements material to the Company or any Company Subsidiary taken as a whole pursuant to which the Company or Company Subsidiary is obligated to indemnify any other person; | |
(xiii) any agreement with any Governmental Entity; | |
(xiv) any agreement with any of the Stockholders or any of their affiliates or any current or former officer, director, stockholder, employee, consultant, agent or other representative of the Company or any Company Subsidiary (or with a person in which any of the foregoing is a controlling person); | |
(xv) any agreement having a duration of six months or more and not terminable without penalty upon 60 days or less prior notice by the Company or any Company Subsidiary that are a party thereto; or | |
(xvi) any agency, broker, exclusive dealing, distributor, dealer, manufacturer, representative, reseller, agency and sales promotion agreements involving payments in excess of $50,000 or any other |
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agreement that compensates any person, other than employees or consultants of the Company or any Company Subsidiary, based on any sales by the Company or any Company Subsidiary. |
(i) “Lease” means the lease, sublease, license or other agreement relating to the use and/or occupancy of any of the Leased Premises. | |
(ii) “Leased Premises” means all the real property that is leased or operated by the Company and the Company Subsidiaries and used or held for use by the Company or any Company Subsidiary in the operation or conduct of their business. | |
(iii) “Owned Real Property” means all the real property that is owned and used or held for use by the Company and the Company Subsidiaries in the operation or conduct of their business. | |
(iv) “Real Property” means, collectively, the Leased Premises under the Leases and the Owned Real Property. |
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(i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by a wholly owned subsidiary to its security holders, (B) split, combine or reclassify any of its capital stock or other Equity Interests, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or other Equity Interests or (C) purchase, redeem or otherwise acquire any of its shares of capital stock or other Equity Interests, any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, other than, in respect of any of the foregoing clauses (B) or (C), pursuant to the terms of Company Stock Options outstanding as of the date hereof or pursuant to the conversion of convertible debt outstanding as of the date hereof; | |
(ii) issue, deliver, sell or grant (A) any shares of its capital stock or other Equity Interests, (B) any Voting Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Debt, voting securities or convertible or exchangeable securities, (D) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based performance units or (E) any options, warrants, rights, securities, units, commitments, Contracts, arrangements or undertakings of any kind that give any person the right to receive any economic benefits and rights accruing to holders of its or any Company Subsidiaries’ capital stock, other |
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than, in respect of any of the foregoing, pursuant to the terms of Company Stock Options outstanding as of the date hereof or pursuant to the conversion of convertible debt outstanding as of the date hereof; | |
(iii) amend or otherwise change the Company Charter, the Company By-laws or the certificate or articles of incorporation, by-laws or other comparable charter or organizational documents of any Company Subsidiary; | |
(iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any Equity Interest in or business of any person or (B) any material assets, except for purchases of inventory in the ordinary course of business consistent with past practice; | |
(v) (A) grant to any current or former director, officer, independent contractor or employee (each a “Participant”) any loan or increase in compensation, benefits, perquisites or any bonus or award, or pay any bonus to any such person, except to the extent required under employment agreements in effect as of the date hereof or in the ordinary course of business consistent with past practice, (B) grant to any Participant any increase in severance, change in control or termination pay or benefits, except to the extent required under any agreement in effect as of the date hereof, (C) enter into any employment, loan, retention, consulting, indemnification, termination or similar agreement with any Participant, except in the ordinary course of business consistent with past practice, (D) enter into any change of control, severance or similar agreement with any Participant, (E) take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan, except in the ordinary course of business consistent with past practice, (F) establish, adopt, enter into, terminate or amend any collective bargaining agreement or benefit plan, except in the ordinary course of business consistent with past practice, (G) amend, waive or otherwise modify any of the terms of any Company Stock Option or stock option plan or (H) take any action to accelerate any rights or benefits or make any material determinations, under any collective bargaining agreement or benefit plan; | |
(vi) make any change in accounting methods, principles or practices materially affecting its reported consolidated assets, liabilities or results of operations, other than as may have been required by a change in GAAP or any Governmental Entity; | |
(vii) sell, lease, license, transfer, pledge or otherwise dispose of or subject to any Lien any properties or assets that have a fair value, individually, in excess of $100,000 or, in the aggregate, in excess of $1,000,000; | |
(viii) (A) other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date hereof or any refinancing thereof not to exceed the amount borrowable thereunder, incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities of another person, except for short-term borrowings incurred in the ordinary course of business consistent with past practice, or (B) make any loans, advances or capital contributions to, or investments in, any other person (other than to or in any direct or indirect wholly owned subsidiary), individually, in excess of $100,000 or, in the aggregate, in excess of $1,000,000; | |
(ix) make or agree to make any new capital expenditure or expenditures other than capital expenditures for emergency repairs necessary to avoid significant disruption to its business consistent with past practices; | |
(x) make any material Tax election or settle or compromise any material Tax Liability or refund, other than tax elections required by Law; | |
(xi) except in the ordinary course of business consistent with past practice, (A) cancel any indebtedness owed to it or waive any of its claims or rights of substantial value or (B) waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it or any of its subsidiaries is a party; |
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(xii) enter into any Contract otherwise addressed in this Section 6.01(a) having a duration of more than one year and total payment obligations of in excess of $1,000,000 (other than Contracts terminable within one year or the renewal, on substantially similar terms, of any Contract existing on the date hereof); | |
(xiii) except in the ordinary course of business consistent with past practice, cancel, terminate or adversely modify or amend any Material Agreement, or waive, release, assign, settle or compromise any material rights or Claims, or any material litigation or arbitration; or | |
(xiv) authorize any of, or commit or agree to take any of, the foregoing actions. |
(i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by a wholly owned subsidiary to its security holders, (B) split, combine or reclassify any of its capital stock or other Equity Interests, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or other Equity Interests or (C) purchase, redeem or otherwise acquire any of its shares of capital stock or other Equity Interests, any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, other than, in respect of any of the foregoing clauses (B) or (C), pursuant to the terms of Parent stock options or warrants outstanding as of the date hereof or pursuant to the conversion of convertible debt outstanding as of the date hereof, and other than, in respect of the foregoing clause (C), pursuant to the terms of the put option under the Agreement and Plan of Merger, dated August 19, 2002, among Palisade, Palisade Merger Corp. and Parent, as amended; | |
(ii) issue, deliver, sell or grant (A) any shares of its capital stock or other Equity Interests, (B) any Voting Parent Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Parent Debt, voting securities or convertible or exchangeable securities, (D) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based performance units or (E) any options, warrants, rights, securities, units, commitments, Contracts, arrangements or undertakings of any kind that give any person the right to receive any economic benefits and rights accruing to holders of capital stock of Parent, other than (x) pursuant to the terms of Parent stock options or warrants or the conversion of convertible debt in accordance with their present terms, in each case, outstanding as of the date hereof, (y) grants of Parent equity awards and Parent stock options pursuant to existing Parent benefits plans or (z) in connection with the proposed acquisition of OptiCare; | |
(iii) amend or otherwise change the Parent Charter or Parent By-laws, except to increase the authorized capital stock of Parent; | |
(iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any Equity Interest in or business of any person or (B) any material assets, except for purchases of inventory in the ordinary course of business consistent with past practice and except for the proposed acquisition of OptiCare; |
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(v) sell, lease, license, transfer, pledge or otherwise dispose of or subject to any Lien any properties or assets that have a fair value, individually, in excess of $250,000 or, in the aggregate, in excess of $2,500,000; | |
(vi) other than debt incurrence pursuant to any credit facility or line of credit existing prior to the date hereof this or any refinancing thereof not to exceed the amount borrowable thereunder, incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities of another person, except for short-term borrowings incurred in the ordinary course of business consistent with past practice; | |
(vii) except in the ordinary course of business consistent with past practice, (A) cancel any indebtedness owed to it or waive any of its claims or rights of substantial value or (B) waive the benefits of, or agree to modify in any manner, any confidentiality, standstill, non-competition, exclusivity or similar agreement to which it or any of its subsidiaries is a party; or | |
(viii) authorize any of, or commit or agree to take any of, the foregoing actions. |
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(i) if the Merger is not consummated on or before December 31, 2005;provided that the right to terminate this Agreement under this Section 9.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or results in, the failure of the Merger to occur on or before such date; | |
(ii) if any Governmental Entity issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; |
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(a) if to Parent or Merger Sub, to |
REFAC | |
One Bridge Plaza | |
Fort Lee, NJ 07024 | |
Attn: Robert L. Tuchman | |
Fax: (201) 585-2020 |
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with a copy to: | |
Skadden, Arps, Slate, Meagher & Flom LLP | |
Four Times Square | |
New York, NY 10036 | |
Attn: Stephen M. Banker | |
Fax: (917) 777-2760 |
(b) if to USV, to |
U.S. Vision, Inc. | |
Glen Oaks Industrial Park | |
One Harmon Drive | |
Glendora, NJ 08029 | |
Attn: William A. Schwartz, Jr. | |
Fax: (856) 228-1004 | |
with a copy to: | |
Lidji & Dorey | |
500 N. Akard Street | |
Dallas, TX 75201 | |
Attn: Brian M. Lidji | |
Fax: (214) 774-1212 |
An “affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person. | |
“Company Material Adverse Effect” means any change, event, fact, development, circumstance or effect that, individually or in the aggregate, would reasonably be expected to be materially adverse to (i) the business, assets, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (ii) the ability of the Company to perform its obligations under this Agreement or (iii) the ability of the Company to consummate the Merger and the other transactions to be performed by the Company hereunder, in each case other than any change, event, fact, development, circumstance or effect relating to (A) the economy in general in the U.S. or (B) regulatory or political conditions in general in the U.S., including acts of war or terrorism, in each of clauses (A) and (B), which do not disproportionately affect the Company relative to the other participants in the industry in which it operates. | |
“Equity Interest” means any share, capital stock, partnership, member or similar interest in any entity, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable therefor. | |
“Knowledge” of any person means what such person (and, if such person is not an individual, such person’s executive officers and any other officer having primary responsibility for the specific matter) knew or should have known after reasonable inquiry. | |
“Liabilities” mean any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated, known or unknown. | |
“Liens” means any mortgage, deed of trust, deed to secure debt, title retention agreement, pledge, lien, encumbrance, security interest, conditional or installment sale agreement, charge or other Claims of third parties of any kind. | |
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“Parent Material Adverse Effect” means any change, event, fact, development, circumstance or effect that, individually or in the aggregate, would reasonably be expected to be materially adverse to (i) the business, assets, financial condition or results of operations of Parent and its subsidiaries, taken as a whole, (ii) the ability of Parent to perform its obligations under this Agreement or (iii) the ability of Parent to consummate the Merger and the other transactions to be performed by Parent hereunder, in each case other than any change, event, fact, development, circumstance or effect relating to (A) the economy in general in the U.S., (B) regulatory or political conditions in general in the U.S., including acts of war or terrorism, or (C) Parent’s stock price or trading volume, in each of clauses (A) and (B), which do not disproportionately affect Parent relative to the other participants in the industry in which it operates. | |
“Permitted Lien” means (a) any Lien for Taxes not yet due or for Taxes being contested in good faith for which adequate reserves have been made, (b) any mechanics’, materialmen’s, warehousemen’s, contractors’, workmen’s, repairmens’, carriers’ or similar Lien attaching by operation of Law, incurred in the ordinary course of business and securing payments not yet due or delinquent or which are being contested in good faith, (c) statutory or common law Liens to secure landlords, lessors or renters under leases or rental agreements confined to the premises or equipment rented, to the extent that no payment or performance under any such lease or rental agreement is in arrears or otherwise due, (d) purchase money Liens and Liens securing rental payments under capital lease arrangements, in each case, not in default and incurred in the ordinary course of business consistent with past practice or (e) any minor imperfection of title which does not have a material impact on the continued use and operation of the property to which such Lien applies. | |
A “person” means any individual, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity. | |
A “subsidiary” of any person means another person in which it owns, directly or indirectly, an amount of the voting securities, other voting ownership or voting partnership interests which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the Equity Interests of such entity). | |
“Taxes” means any and all taxes, charges, fees, levies, tariffs, duties, liabilities, impositions or other assessments of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Tax authority or other Governmental Entity, and shall include any Liability for the Taxes of any other person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), or as a transferee or successor, by contract, or otherwise. | |
“Tax Return” means any return, report, declaration, information return or other document (including any related or supporting information) required to be filed with respect to Taxes, including any amendments thereof. | |
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REFAC |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman |
Title: | Chief Executive Officer |
USV MERGER SUB, INC. |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman |
Title: | President |
U.S. VISION, INC. |
By: | /s/ Carmen Nepa, III |
Name: Carmen Nepa, III |
Title: | Chief Financial Officer |
PALISADE CONCENTRATED EQUITY | |
PARTNERSHIP, L.P. |
By: | Palisade Concentrated Holdings, L.L.C., |
General Partner | |
/s/ Steven E. Berman | |
Name: Steven E. Berman |
Title: | Member |
/s/ William A. Schwartz, Jr. | |
WILLIAM A. SCHWARTZ, JR. |
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/s/ Gayle E. Schmidt | |
GAYLE E. SCHMIDT | |
/s/ George T. Gorman | |
GEORGE T. GORMAN | |
/s/ Carmen J. Nepa, III | |
CARMEN J. NEPA, III | |
PINNACLE ADVISORS LIMITED |
By: | /s/ David Cornstein |
Name: David Cornstein |
Title: | Chief Executive Officer |
WRS ADVISORS III, LLC |
By: | /s/ William L. Mack |
Name: William L. Mack |
Title: | Managing Member |
/s/ Marc Cornstein | |
MARC CORNSTEIN | |
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1. Amendment to Section 9.01(b)(i). Section 9.01(b)(i) is hereby amended and restated in its entirety as follows: |
“if the Merger is not consummated on or before April 30, 2006; provided that the right to terminate this Agreement under this Section 9.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or results in, the failure of the Merger to occur on or before such date;” |
2. Limited Effect. Except as expressly specified herein, the terms and provisions of the Agreement shall continue and remain in full force and effect and shall remain the valid and binding obligation of the parties thereto in accordance with its terms. | |
3. Counterparts. This Amendment may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. | |
4. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof. |
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REFAC |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman | |
Title: Chief Executive Officer | |
USV MERGER SUB, INC. | |
By: | /s/ Robert L. Tuchman |
Name: Robert L. Tuchman | |
Title: President | |
U.S. VISION, INC. | |
By: | /s/ Carmen J. Nepa, III |
Name: Carmen J. Nepa, III | |
Title: Chief Financial Officer | |
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The complete text of Refac’s Certificate of Incorporation, as proposed to be restated, is set forth below. New text is underlined and deleted text is crossed out. |
(1) The name of the Corporation is Refac. | |
(2) The name under which the Corporation was originally incorporated was Resources and Facilities Corporation and the original Certificate of Incorporation of the Corporation was filed with the office of the Secretary of State of the State of Delaware on November 10, 1952. | |
(3) This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation (the “Board of Directors”) and by the stockholders of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. | |
(4) This Restated Certificate of Incorporation of the Corporation restates and integrates and further amends the certificate of incorporation of the Corporation, as heretofore amended or supplemented. | |
(5) The text of the Restated Certificate of Incorporation of the Corporation as amended hereby is restated to read in its entirety, as follows: |
First. The name of the Corporation is RefacOptical Group(the “Corporation”). | |
Second. The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, DE 19808, in the County of New Castle. The name of its registered agent at such address is Corporation Service Company. | |
Third. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. | |
Fourth. The total number of shares of stock which the Corporation shall have authority to issue is |
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A. Preferred Stock |
(a) The Board of Directors is hereby authorized by resolution to divide and issue the shares of Preferred Stock in classes or series and to fix the voting powers and any designations, preferences, qualifications, limitations, restrictions and relative, participating, conditional or other special rights of any such class or series of Preferred Stock as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. The Board of Directors is hereby further authorized by resolution (i) to increase or decrease the authorized number of shares of each class or series (but not below the number of shares then outstanding), and (ii) unless stockholder approval is otherwise required by the laws of the State of Delaware, to modify or adjust the voting powers, the stated value, the dividend rate, the liquidation preferences, the redemption price and the conversion price of any class or series, or any or all of the foregoing, so as to maintain the relative rights of any such class or series with those of the other classes or series of stock of the Corporation. | |
(b) The holders of Preferred Stock of any class or of any series thereof shall be entitled to receive dividends at such rates, on such conditions and at such times as shall be stated in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors, payable in preference to, or in such relation to, the dividends payable on any other class or classes or of any other series of stock, and cumulative or non-cumulative as shall be so stated and expressed. When dividends upon the Preferred Stock, if any, to the extent of the preference to which such stock is entitled, shall have been paid or declared and set apart for payment, a dividend on the remaining class or classes or series of stock may then be paid out of the remaining assets of the Corporation available for dividends as provided by law. | |
(c) The holders of Preferred Stock of any class or of any series thereof shall be entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation as shall be stated in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. | |
(d) Any Preferred Stock of any class or of any series thereof may be made convertible into, or exchangeable for, at the option of either the holder or the Corporation or upon the happening of a specified event, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, at such price or prices or at such rate or rates of exchange and with such adjustments as shall be stated in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. | |
(e) Any Preferred Stock of any class or of any series thereof may be made redeemable for cash, property or rights, including securities of any other corporation, at the option of either the holder or the Corporation or upon the happening of a specified event, at such time or times, such price or prices, or such rate or rates, and with such adjustments, as shall be stated in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. | |
(f) The holders of Preferred Stock of any class or of any series thereof shall have full, limited, multiple, fractional, conditional or no voting rights as shall be stated in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. |
B. Common Stock |
(a) The holders of shares of Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors. | |
(b) In the event of voluntary or involuntary liquidation of the Corporation, the holders of shares of Common Stock shall be entitled to receive pro rata all of the remaining assets of the |
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Corporation available for distribution to its stockholders after all amounts to which the holders of shares of Preferred Stock are entitled have been paid or set aside in cash for payment. | |
(c) Each holder of record of each share of Common Stock shall be entitled to one vote for each such share standing in such holder’s name on the books of the Corporation. | |
| |
Fifth. The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Board of Directors: |
A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. | |
B. The number of directors may be increased from time to time by the stockholders or by the Board of Directors or may be decreased by the stockholders. | |
C. Each director shall hold office until the next annual meeting of the stockholders and until his or her successor shall have been duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office, as hereinafter provided in this Certificate of Incorporation, or as otherwise provided by statute or the Corporation’sBy-Laws. | |
D. In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the General Corporation Law of Delaware, this Restated Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the Board of Directors which would have been valid if such By-Laws had not been adopted. |
Sixth. In furtherance and not in limitation of the powers conferred by the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation shall be authorized to make, alter, or repeal the By-Laws of the Corporation as and to the extent permitted therein. | |
Seventh. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the |
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Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which such director derived an improper personal benefit. No repeal or modification of this Article Seventh shall adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification. | |
Eighth. The Corporation shall indemnify and advance expenses to any current or former director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify and advance expenses to any current or former employee or agent of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise (including employee benefit plans), to the fullest extent permissible under Delaware law, as then in effect. Any repeal or modification of this Article Eighth shall not adversely affect any right or protection of any indemnified person existing at the time of such repeal or modification. The rights to indemnification and to the advancement of expenses conferred in this Article Eighth shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, theBy-Laws, any statute, agreement, vote of stockholders or disinterested directors, or otherwise. | |
Ninth. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under ss.291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under ss.279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. | |
Tenth. The Corporation shall not be subject to or governed by Section 203 of the Delaware General Corporation Law. |
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(a) reviewed a draft of the Agreement and Plan of Merger and related documents dated August 22, 2005; | |
(b) reviewed OptiCare’s 10-Qs for the three months ended June 30, and March 31, 2005 and its 10-Ks for the years ended December 31, 2002, 2003 and 2004; | |
(c) reviewed Opticare’s budget for the year ending December 31, 2005 and forecasts prepared by the management of OptiCare for the four years ending December 31, 2008 and prepared discounted cash flow analyses from such forecasts; | |
(d) reviewed the terms of recent financing transactions between OptiCare, its stockholders and Palisade; | |
(e) discussed with members of the senior management of OptiCare, the company’s business, operating results, financial condition, prospects and the implications of the merger; |
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(f) compared stock prices, operating results, earnings estimates and financial condition of publicly traded eyewear manufacturers and specialty retailers, and managed care providers we deemed reasonably comparable to OptiCare, to similar data for OptiCare; | |
(g) compared valuation multiples (to the extent available) and other financial terms of mergers and acquisitions of eyewear manufacturers and specialty retailers, and managed care providers we deemed reasonably comparable to OptiCare, to similar data for OptiCare; | |
(h) analyzed Refac’s stock price trading history, and reviewed its 10-Qs for the three months ended March 31, and June 30, 2005 and its 10-K for the year ended December 31, 2004; and | |
(i) reviewed certain other information and performed other analyses that we deemed appropriate. |
Very truly yours, | |
/s/ Mufson Howe Hunter & Partners LLC | |
Mufson Howe Hunter & Partners LLC |
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(a) reviewed a draft of the Agreement and Plan of Merger and related documents dated August 22, 2005; | |
(b) reviewed the audited financial statements of U.S. Vision as of and for the years ended January 31, 2001, 2002, (2003 audited financial statements have not been prepared), 2004 and 2005; | |
(c) reviewed internally prepared interim financial statements for the six months ended June 30, 2005 and forecasts for the fiscal year ending January 31, 2006; | |
(d) reviewed forecasts prepared by the management of U.S. Vision for the five years ending January 31, 2010 and prepared discounted cash flow analyses from such forecasts; | |
(e) reviewed the terms of recent financing transactions between U.S. Vision, its stockholders and Palisades Concentrated Equity Partnership, L.P.; | |
(f) discussed with members of the senior management of U.S. Vision, the company’s business, operating results, financial condition, prospects and the implications of the merger; | |
(g) compared stock prices, operating results, earnings estimates and financial condition of publicly traded eyewear manufacturers and specialty retailers we deemed reasonably comparable to U.S. Vision, to similar data for U.S. Vision; |
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(h) compared valuation multiples (to the extent available) and other financial terms of mergers and acquisitions of eyewear manufacturers and specialty retailers we deemed reasonably comparable to U.S. Vision, to similar data for U.S. Vision; | |
(i) analyzed Refac’s stock price trading history, and reviewed its 10-Q for the three months ended March 31, 2005 and its 10-K for the year ended December 31, 2004; and | |
(j) reviewed certain other information and performed other analyses that we deemed appropriate. |
Very truly yours, | |
/s/ Mufson Howe Hunter & Partners LLC | |
Mufson Howe Hunter & Partners LLC |
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Media, Pennsylvania 19063 | of Directors of OptiCare Page 1 of 8 |
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Media, Pennsylvania 19063 | of Directors of OptiCare Page 2 of 8 |
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Media, Pennsylvania 19063 | of Directors of OptiCare Page 3 of 8 |
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Media, Pennsylvania 19063 | of Directors of OptiCare Page 4 of 8 |
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OPTICARE |
Media, Pennsylvania 19063 | of Directors of OptiCare Page 5 of 8 |
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U.S. VISION |
REFAC |
Media, Pennsylvania 19063 | of Directors of OptiCare Page 6 of 8 |
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Media, Pennsylvania 19063 | of Directors of OptiCare Page 7 of 8 |
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Sincerely, | |
/s/ The Woodward Group, Ltd. | |
The Woodward Group, Ltd. |
Media, Pennsylvania 19063 | of Directors of OptiCare Page 8 of 8 |
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“The maximum number of shares of Stock authorized and reserved for issuance pursuant to the Plan shall be 1,250,000.” |
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Item 20. | Indemnification of Directors and Officers |
Item 21. | Exhibits and Financial Statement Schedules |
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Item 22. | Undertakings |
(a) (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; | |
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and | |
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; | |
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; | |
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |
(b) To respond to requests for information that is incorporated by reference into the joint proxy statement/ prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. | |
(c) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective; and | |
(d) Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 20 above, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim of indemnification against such liabilities, other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in a successful defense of any action, suit or proceeding, is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. | |
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REFAC |
By: | /s/ Robert L. Tuchman |
Robert L. Tuchman, Chief | |
Executive Officer and General Counsel | |
By: | * Raymond A. Cardonne, Jr. | Chief Financial Officer | Dated: February 13, 2006 | |||
By: | * Eugene K. Bolton | Director | Dated: February 13, 2006 | |||
By: | * Clark A. Johnson | Director | Dated: February 13, 2006 | |||
By: | * Mark N. Kaplan | Director | Dated: February 13, 2006 | |||
By: | * Melvin Meskin | Director | Dated: February 13, 2006 | |||
By: | * Mark S. Newman | Director | Dated: February 13, 2006 | |||
By: | * Jeffrey D. Serkes | Director | Dated: February 13, 2006 | |||
By: | /s/ Robert L. Tuchman Robert L. Tuchman | Director | Dated: February 13, 2006 | |||
By: | * Dennison T. Veru | Director | Dated: February 13, 2006 | |||
*By: | /s/ Robert L. Tuchman Name: Robert L. Tuchman Attorney-in-Fact |
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Exhibit No. | Exhibit | |||
2 | .1 | Agreement and Plan of Merger, dated as of August 22, 2005, by and among Refac, OptiCare Merger Sub, Inc., and OptiCare Health Systems, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Refac on August 23, 2005) | ||
2 | .2 | Amendment No. 1 to the Agreement and Plan of Merger, dated as of November 11, 2005, by and among Refac, OptiCare Merger Sub, Inc. and OptiCare Health Systems, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Refac on November 15, 2005) | ||
2 | .3 | Agreement and Plan of Merger, dated as of August 22, 2005, by and among Refac, USV Merger Sub, Inc., and U.S. Vision, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Refac on August 23, 2005) | ||
2 | .4 | Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 5, 2005, by and among Refac, USV Merger Sub, Inc. and U.S. Vision, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Refac on December 8, 2005) | ||
3 | .1 | Restated Certificate of Incorporation of Refac. (Incorporated by reference to Exhibit 1 to Refac’s Registration Statement on Form 8-A filed with the SEC on February 28, 2003, SEC file number 001-12776) | ||
3 | .2 | By-Laws of Refac. (Incorporated by reference to Exhibit 3.1 to Refac’s Current Report on Form 8-K filed with the SEC on June 20, 2005) | ||
5 | .1 | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the securities offered hereby** | ||
8 | .1 | Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. as to tax matters* | ||
23 | .1 | Consent of Skadden, Arps, Slate, Meagher & Flom LLP** | ||
23 | .2 | Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included as part of Exhibit 8.1 hereto)* | ||
23 | .3 | Consent of Grant Thornton LLP* | ||
23 | .4 | Consent of Deloitte & Touche LLP* | ||
23 | .5 | Consent of Ernst & Young LLP* | ||
23 | .6 | Consent of Mufson, Howe, Hunter & Company LLC** | ||
23 | .7 | Consent of Mufson, Howe, Hunter & Company LLC** | ||
23 | .8 | Consent of The Woodward Group. Ltd.** | ||
24 | .1 | Power of Attorney** | ||
99 | .1 | Proxy Card of Refac* | ||
99 | .2 | Proxy Card of OptiCare* | ||
99 | .3 | Amendment to Refac Stock Incentive Plan** | ||
99 | .4 | Opinion of Mufson, Howe, Hunter & Company LLC** | ||
99 | .5 | Opinion of Mufson, Howe, Hunter & Company LLC** | ||
99 | .6 | Opinion of The Woodward Group. Ltd.** | ||
99 | .7 | Form of Restated Certificate of Incorporation of Refac. (included as Annex C)* |
* | Filed herewith. |
** | Included as an exhibit to the Registration Statement on Form S-4 filed by Refac on December 15, 2005. |
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