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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 1-14128
STERLING VISION, INC.
(Exact name of Registrant as specified in its Charter)
New York 11-3096941
(State of Incorporation) (IRS Employer
Identification No.)
1500 Hempstead Turnpike
East Meadow, NY 11554
(Address of Principal Executive Offices, including Zip Code)
(516) 390-2100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 14,714,863 shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of May 14, 1998.
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Item 1. Financial Statements
STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars In Thousands)
March 31, December 31,
1998 1997
(Unaudited)
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 717 $ 334
Accounts receivable - net of allowance for
doubtful accounts of $604 and $514, respectively 10,247 8,446
Franchise and other notes receivable - current ....... 3,270 3,301
Inventories .......................................... 3,272 3,310
Due from related parties - current ................... 104 110
Prepaid expenses and other current assets ............ 432 516
-------- --------
Total Current Assets ........................... $ 18,043 $ 16,017
Property and equipment - net of
accumulated depreciation ....................... 9,614 9,903
Franchise and other notes receivable - net of allowance
for doubtful accounts of $562 .................. 14,235 14,884
Excess of cost over fair value of assets acquired ....... 3,120 3,272
Restricted cash ......................................... 550 550
Other noncurrent assets ................................. 1,236 1,217
-------- --------
Total Assets ................................... $ 46,798 $ 45,843
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .................... $ 2,477 $ 3,477
Convertible debentures due August 25, 1998 ........... -- 1,652
Accounts payable and accrued liabilities ............. 6,446 6,579
Franchise related obligations - current .............. 758 837
-------- --------
Total Current Liabilities ...................... $ 9,681 $ 12,545
Long term debt .......................................... 9,189 10,249
Deferred franchise income ............................... 93 96
Excess of fair value of assets acquired over cost ....... 1,275 1,362
Lease terminations costs ................................ 191 320
Commitments and contingencies (Note 7)
Shareholders' Equity:
Preferred stock, $.01 par value per share;
authorized 5,000,000 shares; issued 35 ......... -- --
Common stock, $.01 par value per share; authorized
28,000,000 shares; 14,322,857 and 13,927,227
issued and outstanding, respectively ........... 143 139
Additional paid-in capital ........................... 48,240 40,843
(Deficit) ............................................ (22,014) (19,711)
-------- --------
Total Shareholders' Equity ..................... 26,369 21,271
-------- --------
Total Liabilities and Shareholders' Equity ..... $ 46,798 $ 45,843
======== ========
See accompanying notes to Consolidated Condensed Financial Statements.
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STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
For the Three Months Ended
March 31,
1998 1997
-------- --------
Systemwide sales(Unaudited) ...................... $ 37,031 $ 36,658
======== ========
Revenues:
Net sales - Company stores .................... $ 6,939 6,004
Franchise royalties ........................... 2,385 2,113
Net gains and fees from the conveyance of
Company-owned assets to franchisees ..... 135 810
Other income .................................. 555 547
-------- --------
Total Revenues ................................... 10,014 9,474
-------- --------
Costs and expenses:
Cost of sales ................................. 1,894 1,621
Selling expenses .............................. 4,237 3,849
General and Administrative expenses ........... 3,386 3,344
Interest expense .............................. 331 334
Amortization of debt discount ................. -- 2,021
-------- --------
Total Costs and Expenses ......................... 9,848 11,169
-------- --------
Net income (loss) before provision for
income taxes ............................ $ 166 (1,695)
Provision for income taxes ....................... -- --
-------- --------
Net income (loss) ................................ $ 166 $ (1,695)
======== ========
Weighted average number of common
shares outstanding ...................... 14,318 13,239
======== ========
Basic (loss) per common share (Note 11) .......... ($.16) $ (.13)
======== ========
See accompanying notes to Consolidated Condensed Financial Statements.
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STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
For the Three Months Ended
March 31,
1998 1997
------- -------
Cash flow from operating activities:
Net income ....................................... $ 166 $(1,695)
Adjustments to reconcile net income to net
cash provided by operation activities:
Depreciation and amortization ........... 572 408
Amortization of debt discount ........... 0 2,001
Allowance for doubtful accounts ......... 90 91
Net gain from the conveyance
of Company-owned assets to franchisees (75) (700)
Accrued interest ........................ 22 21
Accretion of fair value of assets
acquired over cost ................... (87) (97)
Changes in assets and liabilities:
Accounts receivable ..................... (1,890) (825)
Inventories ............................. 38 240
Prepaid expenses and other
current assets ....................... 84 (63)
Other assets ............................ (42) 21
Accounts payable and accrued liabilities (177) (2,785)
Franchise related obligations ........... (80) (149)
Deferred franchise income ............... 3 (100)
Lease termination costs ................. 129 --
------- -------
Net cash (used in) operating activities ................... $(1,511) $(3,632)
------- -------
Cash flows from investing activities:
Franchise notes receivable issued ................ (22) (982)
Repayment of franchise notes receivable .......... 708 502
Purchase of property and equipment ............... (182) (205)
Conveyance of property and equipment ............. 148 1,041
------- -------
Net cash provided by investing activities ................. $ 652 $ 356
------- -------
Continued on next page
See accompanying notes to Consolidated Condensed Financial Statements.
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STERLING VISION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
For the Three Months Ended
March 31,
1998 1997
------- -------
Cash flows from financing activities:
Sale of stock and other capital contributions,
out of issuance costs ............................... 3,324 --
Repayment of term loans ................................ -- (498)
Repayment of revolving credit note ..................... -- (1,000)
Payments on other debt ................................. (2,082) (1,224)
Issuance of Convertible Debentures ..................... 7,540
Net cash provided by financing activities ................. 1,242 4,818
Net increase in cash and cash equivalents ................. 383 1,542
Cash and cash equivalents - beginning of year ............. 334 868
------- -------
Cash and cash equivalents - end of period ................. $ 717 $ 2,410
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................... $ 331 $ 334
Income taxes ........................................... $ 0 $ 43
======= =======
See accompanying notes to Consolidated Condensed Financial Statements.
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STERLING VISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The accompanying Consolidated Condensed Financial Statements of Sterling
Vision, Inc. (the "Registrant") and Subsidiaries (collectively, the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statement presentation. In the opinion of
management, all adjustments for a fair statement of the results of operations
and financial position for the interim periods presented have been included.
All such adjustments are of a normal recurring nature. This financial
information should be read in conjunction with the Consolidated Condensed
Financial Statements and Notes thereto included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997. There have been no
changes in significant accounting policies since December 31, 1997.
NOTE 2
On February 26, 1997, the Company entered into Convertible Debentures
and Warrants Subscription Agreements with certain investors in connection with
the private placement (the "Private Placement") of units (collectively, the
"Units") consisting of an aggregate of $8,000,000 principal amount of
Convertible Debentures (collectively, the "Debentures") and an aggregate of
800,000 warrants (collectively, the "Warrants"), each Warrant entitling the
holder thereof to purchase one share of Common Stock at a price to be
determined in accordance with a specified formula and, for each two Warrants
exercised within a specified period of time, an additional warrant
(collectively, the "Bonus Warrants") to purchase one additional share of the
Common Stock at a price of $7.50 per share. The Company used the net proceeds
(approximately $7,500,000) of the Private Placement to: (i) repay a portion of
the loans made to it by certain principal shareholders of the Company
($1,000,000, together with interest thereon, in the approximate amount of
$50,000); and (ii) pay down the Company's revolving line of credit
($1,000,000) with The Chase Manhattan Bank (the "Bank").
The Debentures bear no interest and mature on August 25, 1998. Except
for $400,000 principal amount of the Debentures which were redeemed by the
Company, prior to March 31, 1998, all of the Debentures were converted by the
holders thereof into registered shares of the Company's Common Stock at a
price per share (the "Conversion Price") equal to the lesser of $6.50 or 85%
of the average closing bid price of the Common Stock as reported on the Nasdaq
National Market System ("Nasdaq") for the 5 trading days immediately preceding
the date of conversion (See Note 7).
The Warrants entitle the holders thereof to purchase an aggregate of
800,000 shares of Common Stock at an exercise price per share equal to the
lower of $6.50 or the average of the Conversion Price of any Debentures
converted, by the holder, prior to the date of exercise. The Warrants are
exercisable until February 26, 2000. If a holder of a Warrant exercises a
Warrant at any time during the 2 year period following the effectiveness of
the registration statement, such holder will receive, for each two Warrants
exercised within such time, an additional Bonus Warrant entitling the holder
thereof to purchase one additional share of Common Stock at an exercise price
of $7.50 per share, which Bonus Warrants have a term of 3 years from the date
of grant. (See Notes 5 and 10).
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NOTE 3
On April 1, 1997, the Company acquired all of the issued and outstanding
shares of the capital stock of Singer Specs, Inc., a Delaware corporation, and
certain of its wholly owned subsidiaries (collectively, "Singer") pursuant to
the terms of a certain Agreement and Plan of Reorganization, dated February
19, 1997 (the "Singer Agreement"), between the Company and the owners
(collectively, the "Shareholders") of all of the capital stock of Singer. As
of the closing, Singer was the: (i) operator of four retail optical stores
(collectively, the "Company Stores"); (ii) franchisor of approximately an
additional 27 other retail optical stores, all of which company operated and
franchised stores are located in the States of Pennsylvania, Delaware, New
Jersey, Virginia and the U.S. Virgin Islands; and (iii) owner of a commercial
building located in Philadelphia, Pennsylvania.
The Singer Agreement provided for such Shareholders to convey all of
said capital stock to the Company, free and clear of any and all claims, liens
and/or encumbrances, in exchange for shares of the Company's Common Stock,
subject to certain post closing adjustments.
The Singer Agreement provided: (i) that the assets of each of the
Company Stores be conveyed to corporations owned by one or more of the
Shareholders, which entities, simultaneously with the closing, each entered
into a Sterling Optical Center Franchise Agreement; (ii) for the pledge, by
the Shareholders, of all of their shares of the Common Stock, to secure their
obligations under the Singer Agreement; (iii) that the Company file, with the
Securities and Exchange Commission ("SEC"), a registration statement seeking
registration of the Common Stock issued to the Shareholders, as discussed
below; (iv)for the Shareholders being restricted from selling a portion of
their shares of said Common Stock, all as more particularly set forth in the
Singer Agreement; and (v) a requirement that the Company, under certain
circumstances, pay to the Shareholders the difference between the market price
of its Common Stock (upon which the purchase price was calculated) and the
selling price (net of 50% of commissions) of any such shares sold by such
Shareholders. This transaction was accounted for as a purchase, effective
April 1, 1997, in accordance with Accounting Principle Board Pronouncements
("APB") 16 and 17, with allocations made based upon the estimated, fair market
value of the assets acquired. Franchise Agreements are being amortized over a
period of ten (10) years. The Company, pursuant to the terms of the Singer
Agreement, paid to the Shareholders approximately $143,000, which represented
the difference between the market price of its Common Stock (upon which the
purchase price for the capital stock of Singer was calculated) and the selling
price (net of 50% of commissions) generated from their sale of approximately
100,000 shares of the Company's Common Stock.
On April 21, 1997, the Company entered in a Note Amendment and
Conversion Agreement (the "BEC Agreement") with BEC Group, Inc. ("BEC"), the
holder of two promissory notes (each having a term of 25 months and in the
original principal amount of $1,050,000 and $200,000, respectively) issued by
the Company in connection with its acquisition (the "Pembridge Transaction"),
on August 26, 1994, from Pembridge Optical Partners, Inc., of the assets of
eight retail optical stores. Pursuant to the BEC Agreement: (i) the Company,
on June 9, 1997, prepaid the principal balance of (but not accrued interest
on) each of said promissory notes in registered shares of its Common Stock;
and (ii)is afforded the right to prepay the principal balance of (but not
accrued interest on) each of said promissory notes in registered shares of its
Common Stock; and was required to pay the difference between market price of
its Common Stock (upon which the number of shares to be used to BEC was
calculated) and the selling price of any such shares sold by BEC.
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On May 9, 1997, the Company filed, with the SEC, a registration
statement on Form S-3 seeking registration, under the Act, of an aggregate of
3,213,464 shares of its Common Stock, as follows: (i) 2,477,506 shares being
registered on behalf of the investors in the Private Placement (see Note 4);
(ii) 305,747 shares being registered on behalf of the Shareholders, as
discussed above; (iii) 152,211 shares being registered on behalf of BEC, as
discussed above; and (iv) 278,000 shares being registered on behalf of the
holders of certain options granted to the former President of the Company and
certain warrants issued to the Underwriters.
NOTE 4
Effective December 15, 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share". Statement No. 128 replaced the
previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Under the new requirements for calculating
earnings per share, the dilutive effect of stock options will be excluded from
basic earnings per share but included in the computation of diluted earnings
per share. All earnings per share amounts have been restated so as to comply
with Statement No. 128.
NOTE 5
At the March 13, 1997 meeting of the Emerging Issues Task Force, the
staff of the SEC issued an announcement regarding accounting for the issuance
of convertible debt securities. The announcement dealt with, among other
things, the belief, by the SEC, that any beneficial conversion features on
future conversions of debt securities increase the effective interest rate of
the securities and should, therefor, be reflected as a charge to earnings.
During the quarter ended March 31, 1997, the Company issued $8 million
principal amount of its Convertible Debentures due August 25, 1998 (the
"Debentures"), together with Warrants to purchase up to 800,000 shares of the
Company's Common Stock, and, for each two Warrants exercised within a
specified period of time, one additional Bonus Warrant (collectively, the
"Units"). The Debentures provide for conversion features that permit the
holders thereof to convert their Debentures to shares of the Company's Common
Stock at a discount from the market price at the time the Debentures were
issued. Although the date of this pronouncement was subsequent to the
Company's issuance of the Debentures, it is the Company's opinion that the SEC
intended this announcement to apply retroactively.
Utilizing the conversion terms most beneficial to the purchasers of the
Units, the Company has recorded in the accompanying financial statements
amortization of debt discount of approximately $2,021,000 for the three months
ended March 31, 1997, out of a total debt discount, with respect to all of the
Debentures, of $5,916,000, which was credited to the Company's paid-in-capital
(Shareholders' Equity) over the period of time that the holders thereof
actually converted the same to Common Stock. The non-cash portion of the
discount was $5,436,000. Accordingly, as of March 31, 1998 such discount had
no effect on the Company's Shareholders' Equity. This amount represented the
intrinsic value of the beneficial conversion feature which is inherent in the
conversion terms of the Debentures, and the fair value of the Warrants (with
an assumed exercise price of $6.50), the Bonus Warrants (with an assumed
exercise price of $7.50), issued with the Debentures, and the issuance cost of
the Units. This discount was being amortized over the minimum period the
Debentures become convertible.
The Debentures were originally classified on the Company's Consolidated
Condensed Balance Sheet as Common Stock to be issued, net of costs of
approximately $500,000, because the Company believed that the likelihood that
the Debentures would not be converted was remote. Since such date, however,
the Company has determined that the
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Debentures should have been classified on the Company's Consolidated Condensed
Balance Sheet as Long Term Debt.
NOTE 6
In February, 1998, the Company entered into Convertible Debentures and
Warrants Subscription Agreements with certain investors in connection with the
private placement of units consisting of an aggregate of $3.5 million
principal amount of convertible debentures (as amended on March 25, 1998,
collectively, the "1998 Debentures") and an aggregate of 700,000 warrants
(collectively, the "1998 Warrants"), which 1998 Warrants entitled the holders
thereof to purchase up to 700,000 shares of the Company's Common Stock, at a
price of $5.00 per share. The Company used the net proceeds (approximately
$3.3 million) of the private placement: (i)to repay certain loans previously
made to it ($1,700,000), together with interest thereon; and (ii) the balance
for general corporate purposes.
Subsequently to the date of the Company's issuance and sale of the 1998
Debentures and 1998 Warrants, the Company and the Holders thereof
(collectively, the "Original Holders"), determined that the issuance and sale
of such 1998 Debentures and 1998 Warrants should be rescinded based upon a
certain mutual mistake of the Company and the Original Holders. Accordingly,
on April 14, 1998, the Company and the Original Holders entered into an
Exchange Agreement, effective as of February 17, 1998, pursuant to which the
1998 Debentures were rescinded and declared null and void from inception, and
were exchanged for $3.5 million Stated Value of a series of the Company's
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and the
1998 Warrants were exchanged for new warrants (the "New Warrants"), entitling
holders thereof to purchase up to 700,000 shares of Common Stock at a price of
$5.00 per share (the "Conversion Price"), until February 17, 2001. (See Note
10: Subsequent Events).
The Preferred Stock: (i) requires the Company to pay quarterly dividends
thereon, commencing May 17, 1998, calculated at the rate of ten (10%) percent
per annum; (ii) permits the Company to pay such dividends in registered shares
of its Common Stock; (iii) permits the holders thereof, at any time prior to
redemption by the Company, to convert all or a portion of the same into shares
of Common Stock based upon the Conversion Price: (iv) requires the Company to
redeem, in either cash or registered shares of its Common Stock, at the
Company's option, all (but not less than all) of the Stock (at 105% of the
then, outstanding Stated Value thereof, based upon the Conversion Price,
hereinafter the "Redemption Amount") at any time from and after February 17,
1999 that a registration statement (pursuant to which the Common Stock (into
which the Preferred Stock may be converted) has been registered) is effective;
(v) permits the Company to redeem all (but not less than all) of the Preferred
Stock, in cash and at the Redemption Amount, at any time from and after
February 17, 1999; and (vi) provides that from and after February 18, 1999,
the Company will be required to pay dividends thereon, until the same are
redeemed by the Company, at the rate of twenty-four (24%) percent per annum.
NOTE 7 - Commitments and Contingencies
The Company is, from time to time, a party to litigation arising in the
ordinary course of business. In the opinion of management, there are no
significant claims outstanding that are likely to have a material adverse
effect upon the consolidated financial statements of the Company.
The Company leases locations for the majority of both its operated and
franchised stores. The Company holds the master lease on substantially all
franchised locations and, as part of the franchise agreement, sublets the
subject premises to the
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franchisee. Most master leases are subject to common area charges and
additional rent based upon sales volume. As is required by SFAS 13 "Accounting
for Leases", the Company amortizes its rent expense on a straight-line basis
over the life of the related lease.
As part of the Benson Transaction, the Company issued a non-negotiable,
subordinated convertible debenture (the "Benson Debenture"), in the principal
amount of $5,900,000, subject to reduction and payable, without interest, on
September 15, 2015. The Benson Debenture is subordinated to all existing and
future indebtedness, debts and obligations of the Company. The Company had a
right of offset against the principal amount of the Benson Debenture in the
event the Company did not retain at least 40 of the 98 Benson stores acquired
by the Company in the Benson Transaction, which right of offset was equal to
$147,000 for each store less than 40 that the Company retained. In December
1995, the Company elected to assume the leases for 32 stores and consequently,
was entitled to reduce the principal amount of the Benson Debenture by the sum
of $1,176,000 from $5,900,000 to $4,724,000. The Benson Debenture is included
in Long-Term Debt and is recorded at its present value of $1,076,000 using an
imputed internal interest rate of 8.5%.
On June 30, 1997, the Company entered into a loan agreement (the "Loan
Agreement") with STI Credit Corporation ("STI") that: (i) established, in
favor of the Company, a $20,000,000 credit facility to finance a portion of
the Company's currently existing and future franchise promissory notes
receivable; and, (ii) funded $10,000,000, although $1,000,000 [the "Additional
Funds"] of the funded amount was withheld pending the Company's satisfaction
of a required collateral ratio with respect to such credit facility (less a
facility fee equal to two percent of the amount of the loan). Sixty-five (65%)
percent of the funded amount is to be repaid by the Company over a term of 60
months, with a final balloon payment at the expiration of the sixty-first
month of the term of said loan. The Company granted to STI a first priority,
continuing security interest in a substantial portion of its franchise notes
and the proceeds related to such notes. A portion of the net proceeds
(approximately $6,100,000) of the loan was used to satisfy, pay and discharge,
in full, all amounts then due by the Company to: (i) Chase Manhattan Bank (the
"Bank") ($5,035,000, together with accrued interest thereon, in the
approximate amount of $37,000); and (ii) certain principal shareholders of the
Company ($1,000,000, together with accrued interest thereon, in the
approximate amount of $9,000). As a result of the foregoing: (i) the Bank's
lien upon, and security interest in, substantially all of the Company's assets
(previously securing the Bank's various loans to the Company) was discharged;
and (ii) restrictions previously imposed upon the Company (pursuant to the
Company's Credit Agreement with the Bank) are no longer applicable.
On October 9, 1997, STI amended the Loan Agreement and disbursed a
portion of the Additional Funds to the Company. As of March 31, 1997, the
outstanding principal balance of such loan was approximately $8,026,000.
Pursuant to the terms of the Loan Agreement, the Company must comply with the
following financial covenants: (i) the maintenance of positive, annual net
income for each of its calendar years; (ii) working capital of not less than
$2 million; (iii) shareholders' equity of not less than $26 million; and (iv)
from and after June 30, 1998, a collateral ratio of 1.2 to 1.0. As of December
31, 1997, the Company was not in compliance with the financial covenants
described in clauses (i) and (iii) above, although STI subsequently waived
such non-compliance in exchange for the Company's agreement to execute an
amendment to the Loan Agreement, which amended the Loan Agreement so as to:
(i) waive the Company's compliance with all of its financial covenants until
December 31, 1998; (ii) reduced such shareholders' equity requirement to $25
million; (iii) provided for a prepayment penalty of $500,000; and (iv)
required the Company to pay certain fees to STI, in the aggregate amount of
$70,000.
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As of March 31, 1998, the Company was the lessee of six excimer lasers
and ancillary equipment under capital leases expiring in various years through
2001. The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset.
NOTE 8 - Recent Accounting Requirements
In the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires companies to report all
changes in equity during a period, except those resulting from investment by
owners and distribution to owners, for the period in which they are
recognized. Comprehensive income is the total of net income and all other
nonowner changes in equity (or other comprehensive income) such as unrealized
gains/losses on securities classified as available-for-sale, foreign currency
translation adjustments and minimum pension liability adjustments.
Comprehensive and other comprehensive income must be reported on the face of
annual financial statements or in the case of interim reporting, the footnote
approach may be utilized. For the quarters ended March 31, 1998 and 1997, the
Company's operations did not give rise to items includible in comprehensive
income which were not already included in net income. Accordingly, the
Company's comprehensive income is the same as its net income for all periods
presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS No. 131 requires the reporting
of profit and loss, specific revenue and expense items, and assets for
reportable segments. It also requires the reconciliation of total segment
revenues, total segment profit or loss, total segment assets, and other
amounts disclosed for segments, to the corresponding amounts in the general
purpose financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company's operations are presently
classified into two principal industry segments: (i) the retail optical
segment, whereby the Company owns and operates, as well as franchises a retail
chain of optical stores which offer eyecare products and services such as
prescription and non-prescription eyeglasses, eyeglass frames, ophthalmic
lenses, contact lenses, sunglasses and a broad range of ancillary items; and
(ii) the Insight Laser segment, whereby the Company owns and operates a laser
surgery center and provides access, for a fee, to affiliated ophthalmologists
who utilize Insight's excimer lasers in offering PRK, a procedure performed
with such lasers for the correction of certain degrees of myopia. Management
is presently evaluating the impact on the Company's financial reporting from
the adoption of this statement.
NOTE 9- Impact of the Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems and/or any equipment with computer chips that use dates, where the
date has been stored as just two digits (e.g. 97 for 1997). On January 1,
2000, any clock or date recording mechanism (including date sensitive
software) which uses only two digits to represent the year, may recognize a
date using 00 as the year 1900, rather than the year 2000. This could result
in a system failure or miscalculations, causing disruption of operations, as
such systems may be unable to accurately process certain date-based
information.
The Company has reviewed the Year 2000 Issue with its Management
Information Systems's providers and consultants. The Company believes that the
Year 2000 Issue will not have a material impact on the operations of the
Company since its computer programs were written utilizing four digits to
define the applicable year. The Company, however, cannot determine, as of the
date hereof, the impact of the Year 2000 Issue on any of its vendors and/or
franchisees, which might materially impact the operations of the Company.
11
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NOTE 10 - Subsequent Events
On May 1, 1998, certain of the holders of the Company's Warrants
exercised their right to acquire an aggregate of 392,000 registered shares of
the Company's Common Stock in exchange for the Company's agreement to reduce
the respective exercise prices thereof by 15%. The proceeds of such exercise
were utilized by the Company to acquire the Ambulatory Surgery Center
described below.
On May 6, 1998, the Company, through its wholly owned subsidiary,
Insight Laser Centers N.Y. I, Inc., purchased substantially all of the assets
of an ambulatory surgery center located in Garden City, New York (the
"Center") and, in connection therewith: (i) settled its legal action against
the estate of the former owner of such Center; (ii) entered into a long term
lease of the premises in which such Center is located; and (iii) entered into
an agreement pursuant to which it will manage the operations of the Center, on
an interim basis, pending the approval, from the New York State Department of
Health, of the transfer of the license and certificate of need therefor to the
Company.
NOTE 11 - Earnings per Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". Basic net income (loss) per common share ("Basic EPS") is computed
by dividing net income (loss) by the weighted average number of common shares
outstanding. Diluted net income (loss) per common share ("Diluted EPS") is
computed by dividing net income (loss) by the weighted average number of
common shares, dilutive common share equivalents and convertible securities
then outstanding. SFAS No. 128 requires the presentation of both Basic EPS and
Diluted EPS on the face of the consolidated statements of operations.
The following chart provides a reconciliation of information used in
calculating the per share amounts for the three months ended March 31, 1998
and for the three months ended March 31, 1997. No information is presented for
Diluted EPS as the effect of the inclusion of convertible securities would be
anti-dilutive:
Net Income
Basic EPS Net Income Shares Per Share
- --------- ------------ ---------- ------
Net (Loss)-1998 ($2,303,000) 14,318,000 ($.16)
------------ ---------- ------
Net (Loss)-1997 ($1,695,000) 13,239,000 ($.13)
------------ ---------- ------
The calculation of earnings per share for the three months ended March
31, 1998, reflects a one-time, non-cash charge to earnings attributable to
common stock of $2,469,000, or $.17 per share, as a consequence of the imputed
value of dividends, resulting from the beneficial conversion feature
attributable to the Preferred Stock and the beneficial exercise price of the
New Warrants (see Note 6), reducing net income attributable to common stock
from $166,000 to a net loss attributable to common stock of ($2,469,000). In
addition, net income for the three months ended March 31, 1997, reflected a
non-cash charge of $2,021,000, or $.15 per share.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All statements contained herein (other than historical facts) including,
but not limited to, statements regarding the Company's future development
plans, the Company's ability to generate cash from its operations, including
the operations of the Registrant's subsidiary, Insight, and any losses related
thereto, are based upon current expectations. These statements are forward
looking in nature and involve a number of risks and uncertainties. Actual
results may differ from the anticipated
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<PAGE>
results or other expectations expressed in the Company's forward looking
statements. Generally, the words "anticipate", "believe", "estimate",
"expects" and similar expressions, as they relate to the Company and/or its
management, are intended to identify forward looking statements. Among the
factors that could cause actual results to differ materially are the
following: the inability of the Company to obtain a waiver from STI of its
failure to comply with certain covenants under its Loan Agreement; the
inability of the Company to enter into third party, managed care provider
agreements on favorable terms; the inability of the Company to obtain
additional financing to meet its capital needs; competition in the retail
optical, managed care and ambulatory surgery center industries; the ability of
the Company to acquire, at favorable prices, retail optical chains; the
uncertainty of the acceptance of PRK, a procedure being offered by the
Company's subsidiary, Insight Laser Centers, Inc. ("Insight") to correct the
vision of individuals experiencing certain degrees of myopia; the availability
of new and better ophthalmic laser technologies or other technologies that
serve the same purpose as PRK; the inability of the Company to finalize
favorable agreements with ophthalmologists to utilize the Company's excimer
lasers to perform PRK procedures; competition in the PRK market; and general
business and economic conditions.
Results of Operations
For the Three Months Ended March 31, 1998 compared to March 31, 1997
Systemwide sales represent combined retail sales generated by
Company-owned and franchised stores, as well as revenues generated by
VisionCare of California ("VCC"), a specialized health care maintenance
organization licensed by the California Department of Corporations. There were
308 and 309 Sterling Stores in operation as of March 31, 1998 and March 31,
1997, respectively, of which 263 and 256, respectively, were franchised. Such
stores operate under various tradenames including Sterling Optical, Site for
Sore Eyes, IPCO Optical, Benson Optical, Superior Optical, Southern Optical,
Nevada Optical, Duling Optical, Monfried Optical, Kindy Optical and Singer
Specs. Systemwide sales increased by $373,000, or 1.0%, to $37,031,000 for the
three months ended March 31, 1998, as compared to $36,658,000 for the same
period in 1997. On a same store basis (for stores that operated as either a
Company-owned or franchised store during the entirety of both of the three
month periods ended March 31, 1998 and 1997), systemwide sales increased by
$142,000, or .5%, to $31,003,000 for the three months ended March 31, 1998, as
compared to $30,861,000 for the same period in 1997. There were 276 stores
that operated as either a Company-owned or franchised store during the
entirety of both of the three month periods ended March 31, 1998 and 1997.
Aggregate sales generated from the operation of Company-owned stores
increased by $935,000, or 15.6%, to $6,939,000 for the three months ended
March 31, 1998, as compared to $6,004,000 for the same period in 1997. This
increase was principally due to the Company's agreement, in January 1998, to
manage, on behalf of the owner of seven (7) franchised stores, the operations
of such stores. Such increase was offset, in part, by the decrease in sales
from the conveyance of Company-owned store assets to franchisees. Historical
comparisons of aggregate sales generated by Company-owned stores can become
distorted due to the conveyance of Company-owned store assets to franchisees.
When Company-owned store assets are conveyed to franchisees, sales generated
by such franchised store are no longer reflected in Company-owned store sales;
however, the Company receives on-going royalties based upon a percentage of
the sales generated by such franchised stores. On a same store basis,
aggregate sales generated by Company-owned stores in operation during the
entirety of both of the three month periods ended March 31, 1998 and 1997,
increased by $71,000, or 1.5%, to $4,801,000 for the three months ended March
31, 1998, as
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<PAGE>
compared to $4,730,000 for the comparable period in 1997.
Aggregate sales generated from the operation of franchised stores
decreased by $562,000, or 1.8%, to $30,092,000 for the three months ended
March 31, 1998, as compared to $30,654,000 for the comparable period in 1997.
This decrease was principally due to the Company's agreement to manage the
operations of certain of its franchise stores (as discussed above). On a same
store basis, aggregate sales generated by franchised stores in operation
during the entirety of both of the three month periods ended March 31, 1998
and 1997, increased by $100,000, or .4%,to $26,202,000 for the three month
period ended March 31, 1998, as compared to $26,102,000 for the comparable
period in 1997.
Franchise royalties increased by $272,000, or 12.9% to $2,385,000 for
the three months ended March 31, 1998, as compared to $2,113,000 for the same
period in 1997. This increase is principally due to an increase in the number
of Company-owned stores conveyed to franchisees and the acquisition of certain
franchised stores acquired in the Singer Specs transaction.
Net gains and fees from the conveyance of Company-owned assets to
franchisees decreased by $675,000, or (83.3%), to $135,000 for the three
months ended March 31, 1998, as compared to $810,000 for the same period in
1997. This decrease was principally due to the conveyance of the assets of two
Company-owned stores to franchisees for the three months ended March 31, 1998,
as compared to the conveyance of the assets of six Company-owned stores to
franchisees during the comparable period in 1997.
The Company's gross profit margin was 73% for both of the three months
ended March 31, 1998 and March 31, 1997. In the future, the Company's gross
profit margin may fluctuate depending upon the extent and timing of changes in
the product mix in Company-owned stores, competition and promotional
incentives.
Selling expenses increased by 388,000, or 10.1%, to $4,237,00 for the
three months ended March 31, 1998, as compared to $3,849,000 for the
comparable period in 1997. This increase was principally due to the increase
in the number of Company-owned and/or managed stores over the comparable
period in 1997.
General and administrative expenses (including interest expense,
depreciation and bad debt expense) increased $39,000, or 1.1%, to $3,717,000
for the three months ended March 31, 1998, as compared to $3,678,000 for the
comparable period in 1997. This increase was principally due to an increase in
depreciation and amortization expense of approximately $208,000, to $615,000
for the three months ended March 31, 1998, as compared to $407,000 for the
same period in 1997, which increase was offset, in part, by a decrease in
payroll costs related to the Company's reduction in administrative payroll.
The Company's income before taxes increased to $166,000 for the three
months ended March 31, 1998, as compared to a loss of ($1,695,000) for the
comparable period in 1997. This increase was principally due to a non-cash
charge against earnings, for the three months ended March 31, 1997, in the
amount of approximately $2,021,000, as a result of the Company's issuance and
sale, in February, 1997, of its Convertible Debentures due August 25, 1998
(see Note 5). In addition, for the three months ended March 31, 1998, income
before taxes reflected gains on the conveyance of Company owned store assets
to franchises of approximately $75,000, as compared to approximately $700,000
for the comparable period in 1997.
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<PAGE>
Liquidity and Capital Resources
On February 26, 1997, the Company entered into Convertible Debentures
and Warrants Subscription Agreements (see Note 4) with certain investors in
connection with the Private Placement. The Company utilized the net proceeds
(approximately $7,500,000) of the Private Placement to: (i) repay $1,000,000
of the loans made to it by Drs. Robert, Alan and Edward Cohen, as discussed
above, together with interest thereon, in the approximate amount of $50,000;
and, (ii) pay down the Company's revolving line of credit with Chase Manhattan
Bank ($1,000,000), with the balance of such proceeds being utilized by the
Company for general corporate purposes.
As of March 31, 1998 and December 31, 1997, the Company had $8,406,000
and $3,472,000, respectively, in working capital, and $717,000 and $334,000,
respectively, of cash and cash equivalents. During the twelve months ended
December 31, 1998, the Company anticipates having the following capital
requirements: renovating one existing Company-owned store; the continuing
upgrade of the Company's management information system in conjunction with the
A-P Systems being installed in its Company-owned stores, in the aggregate,
approximate amount of $250,000; acquiring retail optical stores, subject to
availability of qualified opportunities in furtherance of the Company's
business strategy, in amounts that cannot be projected by the Company at this
time.
The Company experienced negative cash flow from operations during the
three months ended March 31, 1998 resulting, primarily, from an increase in
accounts receivable. By the end of 1997, the following measures were taken by
the Company, which management believes will reduce, in the future, the
magnitude of the losses it sustained for the calendar year ended December 31,
1997, as well as improve the Company's operations and cash flow:(i) closed or
did not renew the leases for ten of its Company-owned stores; and (ii) reduced
a substantial amount of administrative overhead expenses. Although the
Company, based, in part, upon the anticipated financial impact of such measure
taken by the Company, believes that its financial condition will improve for
the twelve months ended December 31, 1998, there can be no assurance that its
financial condition will so improve. The Company was not in compliance with
certain of its existing financial covenants as contained in its Loan Agreement
with STI as of December 31, 1997, although the Company subsequently received a
waiver thereof. Although the Company believes that it will be in compliance
with such covenants by the end of 1998, there can be no assurance that it will
be able to do so and, in such event, STI will have the right to accelerate the
payment of the then outstanding principal amount then due under the Company's
Loan Agreement with STI. Accordingly, the Company believes that its current
cash resources and cash flow from operations would be sufficient to fund its
anticipated capital expenditures in 1998.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a.) Exhibits
EXHIBIT INDEX
Exhibit
Number
- ------
27 Financial Data Schedule.
10.77 Waiver, dated April 14, 1998, to the Company's Loan Agreement,
dated June 30, 1997, as previously amended on October 9, 1997
(Incorporated by reference to Exhibit 10.77 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997).
10.78 Form of Exchange Agreement, with Exhibits attached thereto,
entered into on April 14, 1998, effective as of February 17,
1998, between the Company and the holders of its Convertible
Debentures Due February 17, 1999 (Incorporated by reference to
Exhibit 10.78 to the Company's Current Report on Form 8-K,
dated April 14, 1998).
10.79 Contract of Sale, dated May 6, 1998, pursuant to which Insight
Laser Centers N.Y. I, Inc. purchased, from Nassau Center for
Ambulatory Surgery, Inc., substantially all of the non-medical
assets of an ambulatory surgery center located in Garden City,
New York. (Incorporated by reference to Exhibit 10.79 to the
Company's Current Report on Form 8-K, dated May 6, 1998).
10.80 Contract of Sale, dated May 6, 1998, pursuant to which Insight
AmSurg Centers, Inc. has agreed to purchase, from Nassau Center
for Ambulatory Surgery, Inc., the New York State License and
Certificate of Need for an ambulatory surgery center located in
Garden City, New York (Incorporated by reference to Exhibit
10.80 to the Company's Current Report on Form 8-K, dated May 6,
1998).
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10.81 Form of Convertible Debentures and Warrants Subscription
Agreement, with Exhibits attached thereto, dated February 17,
1998, representing the form of Debenture and Warrant
(Incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K, dated February 17, 1998).
10.82 Employment Agreement, dated as of March 2, 1998, between the
Company and William J. Young.
10.82 Letter from Deloitte & Touche LLP, dated May 12, 1998, in
response to the Company's Current Report on Form 8-K, dated May
1, 1998 (Incorporated by reference to Exhibit 16 to the
Company's Current Report on Form 8-K/A, dated May 13, 1998).
B. Reports on Form 8-K.
1. On February 17, 1998, the Company filed a Report on Form 8-K
with respect to its issuance and sale of its Convertible
Debentures Due February 17, 1999.
2. On April 14, 1998, the Company filed a Report on Form 8-K with
respect to the exchange of its Convertible Debentures Due
February 17, 1999, for shares of its Senior Convertible
Preferred Stock.
3. On May 1, 1998, the Company filed a Report on Form 8-K with
respect to its decision to replace its auditors for the 1998
fiscal year.
4. On May 1, 1998, the Company filed a Report on Form 8-K with
respect to its acquisition of the assets of an ambulatory
surgery center located in Garden City, New York.
5. On May 13, 1998, the Company filed a Report on Form 8-K/A with
respect to Deloitte & Touche LLP's response to the Company's
Report on Form 8-K, dated May 1, 1998.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
STERLING VISION, INC.
(Registrant)
BY: /s/ William J. Young
----------------------------
William J. Young
Chief Financial Officer/
Treasurer
Dated: April 15, 1998
18
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EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the 2nd day of March, 1998, is between
Sterling Vision, Inc., a New York corporation having an office at 1500
Hempstead Turnpike, East Meadow, New York 11554 (the "Company"), and
William J. Young, an individual residing at 12 Winding Lane, Ronkonkoma,
New York 11779 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain the services of the Employee, on
its own behalf and on behalf of all existing and future affiliated entities
(defined as any corporation or other business entity or entities that,
directly or indirectly, controls, is controlled by, or is under common control
with the Company), and the Employee desires to be employed by the Company upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, and for the other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. Term of Employment.
The Company hereby employs the Employee to render services to the
Company in the position and with the duties and responsibilities
described in Section 2 hereof commencing on March 30, 1998 (the
"Effective Date") and continuing thereafter for a period of two (2)
years, unless earlier terminated in accordance with the provisions of
Section 4 hereof. For purposes of this Agreement, the "Term of
Employment" shall be the two (2) year period commencing on the Effective
Date, subject to earlier termination pursuant to Section 4 hereof.
2. Position, Duties, Responsibilities.
(a) Position. The Employee hereby accepts such employment and agrees to
serve as the Chief Financial Officer of the Company or in such other
position(s) as the Board of Directors (the "Board") of the Company, at
any time, designate. The Employee shall devote his best efforts and his
full business time and attention to the performance of the services
customarily incidental to the office of Chief Financial Officer and to
such other services as may be reasonably requested by the Board. The
Company shall retain full direction and control over the means and
methods by which the
19
<PAGE>
Employee shall perform the above services and of the place(s) at which
such services are to be rendered. With respect to the foregoing, it is
expressly understood and agreed that the Employee shall not be required
to relocate his personal residence to outside of Nassau County, New
York.
(b) Other Activities. Except upon the prior written consent of the
Board, the Employee, during the Term of Employment, will not: (i) accept
any other employment; (ii) serve on the board of directors of any other
corporation; provided, however, that the Employee may serve in any
capacity with any civic, educational or charitable organization or
governmental entity or trade association; or (iii) engage, directly or
indirectly, in any other business activity (whether or not pursued for
pecuniary advantage) that is or may be competitive with, or that might
place him in a competing position to that of, the Company or any of its
affiliated entities.
3. Salary; Benefits; Expenses.
(a) Salary. In consideration of the services to be rendered hereunder,
the Employee, during the Term of Employment, shall be paid a salary
computed at the rate of One Hundred Twenty-Five ($125,000) Dollars per
annum, payable in substantially equal, semi-monthly installments.
(b) Benefits and Other Arrangements. In addition to the compensation set
forth in Section 4(a) hereof, the Employee shall be entitled to
participate in any plan, arrangement or policy of the Company providing
for medical benefits, and/or sick leave on substantially the same terms
as are generally made available to the other employees of the Company.
(c) Automobile Allowance. In addition to the salary set forth in Section
4(a) hereof, the Company, during the Term of Employment, shall provide
the Employee with an automobile allowance of Four Hundred ($400.00)
Dollars per month.
(d) Vacation. The Employee shall be entitled to a four (4) week, paid
vacation during each year of the Term of Employment, such vacation to:
(i) accrue at the rate of two (2) days for each month worked by the
Employee, other than the months of September and October; and (ii) be
subject to the Company's general policies, as the same may be amended
from time to time; provided, however, that if the Employee, due to his
work load, is restricted from taking said vacation (or any portion
thereof) during any year of the Term of Employment, said unused vacation
days shall carry over to the ensuing year. With respect to the
foregoing, it is understood that
20
<PAGE>
in the event the employment of the Employee shall cease at a time when
the Employee has earned, but not used vacation days, the Employee shall
be compensated for such unused vacation days.
(e) Expenses: The Employee shall be entitled to reimbursement for all
ordinary and necessary business expenses incurred in the performance of
his duties hereunder, subject to the Company's receipt of adequate
substantiation and/or documentation thereof.
(f) Bonus: In addition to the salary set forth in Section 3(a) hereof,
the Employee shall be entitled to an annual bonus of $12,500.00, payable
to the Employee in equal, monthly installments, within five (5) days
after the expiration of each month included within the Term of
Employment, it being understood that: (i) subject to the provisions of
clause (ii) below, the payment of each such monthly bonus shall be
conditioned on the Employee then being in the employ of the Company;
(ii) in the event the employment of the Employee ceases for any reason
(other than pursuant to the provisions of Subsection 4(b) below) and
such additional compensation theretofore paid to the Employee is less
then the aggregate sum of $25,000, the Company shall, within five (5)
business days after such cessation, pay the difference to the Employee;
and (iii) any additional bonuses will be at the sole discretion of the
Compensation Committee of the Company's Board of Directors.
(g) Employee Stock Options. In addition to the benefits available to the
Employee pursuant to Subsection 3(b) hereof, the Company, simultaneously
upon the execution hereof, shall execute and deliver to the Employee the
Non-Qualified Stock Option Agreement annexed hereto as Exhibit A.
4. Termination.
(a) The employment of the Employee hereunder may be terminated by the
Company on not less than thirty (30) days prior written notice to the
Employee in the event that the Employee is determined to be permanently
disabled. As used in this Section, the Employee shall be deemed to be
"permanently disabled" if the Employee has been substantially unable to
discharge his duties and obligations hereunder, by reason of illness,
accident or disability, for a period of thirty (30) or more consecutive
days. In the event the employment of the Employee is terminated because
of a permanent disability, the Employee shall receive (net of all
benefits available to the Employee under any policy of disability
insurance the available to the Employee) compensation until the earlier
of the date which is two and one-half (2 1/2) months after the date on
which the Employee first became disabled and the date on which the
21
<PAGE>
Term of Employment shall expire pursuant to the terms hereof, payable at
the rate and on the terms provided hereby as if he had not been
terminated.
(b) The employment of the Employee hereunder may be terminated by the
Company for cause, at any time during the Term of Employment, upon ten
(10) days' prior written notice to the Employee and the Employee's
failure to remedy the events which gave rise to said notice, in the
event the Employee shall have: (i) wilfully refused or failed, to
perform his duties hereunder, other than any such failure resulting from
the Employee's incapacity due to illness or injury; or (ii) been guilty
of a material or willful breach of any of the terms or provisions of
this Agreement or any other material legal obligation to the Company;
provided, however, that no such notice and opportunity to cure shall be
required more than two (2) times in any twelve (12) month period. In
addition to the foregoing, the employment of the Employee hereunder may
be terminated by the Company for cause, at time during the Term of
Employment, upon written notice from the Company that the Employee shall
have: (i) demonstrated gross negligence or willful misconduct in the
execution of his assigned duties; or (ii) been convicted of a felony or
other serious crime.
(c) The employment of the Employee hereunder shall automatically be
deemed terminated on the date of the Employee's death.
(d) If the Employee's employment is terminated pursuant to Subsections
4(b) or (c) above, the Employee shall be entitled to, and the Company's
obligation shall be limited to, the payment of the compensation accrued
under Subsection 3(a) hereof to the date of such termination or, in the
case of a termination under Subsections 4(a) hereof, to the date
specified therein, all, however, subject to the provisions of Subsection
4(f) hereof and the payment of any remaining, additional compensation
then due the Employee thereunder, if any.
5. Confidentiality.
(a) The Employee shall not, during the Term of Employment or at any time
thereafter, use (other than in the performance of his duties to the
Company) or disclose to any person, firm or corporation (except as
required by law or with the prior written approval of the Company) any
information concerning the business, inventions, discoveries, clients,
affairs or other trade secrets of the Company that he may have acquired
in the course of, or as an incident to, his employment by the Company.
22
<PAGE>
(b) The obligations of confidentiality and non-use set forth in
Subsection (a) above shall not apply to information: (i) which is or
becomes published in any written document or otherwise is or becomes a
part of the public domain without breach of the aforementioned
obligations by the Employee; or (ii) which the Employee can establish
was already in his possession and not subject to a secrecy obligation at
the time he encountered such information in the course of, or as an
incident to, his employment by the Company. Specific information shall
not be deemed published or otherwise in the public domain, or in the
Employee's prior possession, merely because it is encompassed by some
general information published, or in the public domain, or in the
Employee's prior possession.
(c)As a material inducement for the Company to enter into this
Agreement, and expressly in partial exchange for the performance of the
Company's obligations under this Agreement, the Employee hereby
covenants and agrees that during the Term of Employment and for a period
of six (6) months thereafter, he will not, either on his own account, or
directly or indirectly in conjunction with or on behalf of any person,
firm or company:
(i) Solicit or employ, or attempt to solicit or employ, any person who
is then or has, within the six (6) month period prior thereto, been an
officer, director or employee of the Company or any of its affiliates,
whether or not such a person would commit a breach of his or her
contract of employment, if any, by reason of leaving the service of the
Company or any of its affiliates;
(ii)Solicit the business of any person, firm or company which is then,
or has been, at any time during the preceding six (6) month period prior
to such solicitation, a customer, client, contractor, supplier or agent
of the Company or of any of its affiliates; or
(iii) Provided the employment of the Employee has been terminated
pursuant to Subsection 5(b) hereof, carry on or be engaged, concerned or
interested in, or devote any material time to the affairs of, any trade
or business competing with the then trade or business of the Company or
any of its affiliates, or take advantage of any of its affiliates.
6. Notices.
Any notice, request, claim, demand or other communication hereunder to
any party shall be effective upon receipt (or refusal of receipt) and
shall be in writing and delivered personally or sent by telex, telecopy,
or certified or registered mail, return receipt requested, postage
prepaid, as follows:
23
<PAGE>
(i) If to the Company, addressed to its principal executive offices to
the attention of its General Counsel, with a copy to be simultaneously
delivered to the Chairman of the Board of Directors; or (ii) If to the
Employee, to him at the address set forth above; or (iii) at any such
other address as either party shall have specified by written notice
given to the other as herein provided.
7. Entire Agreement.
The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the employment of the
Employee by the Company and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence, whatsoever, may be introduced in
any judicial, administrative or other legal proceeding involving this
Agreement.
8. Amendments; Waivers.
Except as otherwise set forth in Section 4 hereof, this Agreement may
not be modified, amended or terminated except by an instrument, in
writing, signed by the Employee and by a duly authorized representative
of the Board. By an instrument in writing similarly executed, either
party may waive compliance by the other party with any provision of this
Agreement that such other party was or is obligated to comply with or
perform; provided, however, that such waiver shall not operate as a
waiver of, or estoppel with respect to, any other or subsequent failure.
No failure to exercise, and no delay in exercising, any right, remedy or
power hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy or power hereunder preclude any
other or further exercise thereof or the exercise of any other right,
remedy or power provided for herein, or by law, or in equity.
9.Severability; Enforcement.
If any provision of this Agreement, or the application thereof to any
person, place or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement and such provisions as applied to other persons, places and
circumstances, shall remain in full force and effect.
24
<PAGE>
10.Assignability.
(a) In the event that the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or
substantially all the Company's business or assets shall be transferred,
in any manner, to any other corporation, partnership or business entity,
such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be
deemed for all purposes hereof to be, the Company hereunder.
(b) This Agreement is personal in nature, and none of the parties hereto
shall, without the prior written consent of the other, assign or
transfer this Agreement or any of its or his rights or obligations
hereunder, except by operation or law or pursuant to the terms of this
Section 11.
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon, or give to any person, other than the parties
hereto, any right, remedy or claim under, or by reason of, this
Agreement, or of any term, covenant or condition hereof.
11. Restrictive Covenants:
To the extent that a restrictive covenant contained herein may, at any
time, be more restrictive than permitted under the laws of any
jurisdiction where this Agreement may be subject to review and
interpretation, the terms of such restrictive covenant shall be those
allowed by law and the covenant shall be deemed to have been revised
accordingly.
12. Governing Law.
The validity, interpretation, enforceability and performance of this
Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
13.Employee's Representation and Acknowledgment.
The Employee hereby represents that he is free to enter into this
Agreement and is not under any contractual restraint which would
prohibit him from satisfactorily performing his duties to the Company
hereunder. The Employee also acknowledges: (i) that he has consulted
with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement and has been advised to do so
by the Company; and (ii) that he has read and understands this
Agreement, is fully aware of its legal effects and has entered into it
freely, based upon his own judgment.
25
<PAGE>
14.Arbitration.
Any controversy between the Employee and the Company, or any employee,
director or stockholder of the Company, involving the construction or
application of any of the terms, provisions or conditions of this
Agreement or otherwise arising out of, or related to, this Agreement,
shall be settled by arbitration in accordance with the then current
commercial arbitration rules of the American Arbitration Association,
and judgment on the award rendered by the arbitrator may be entered by
any court having jurisdiction thereof. The location of the arbitration
shall be Nassau County, New York.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
STERLING VISION, INC.
By: /s/Robert Cohen
--------------------------
Title: Chairman of the Board
EMPLOYEE
/s/William J. Young
--------------------------
William J. Young
12 Winding Lane
Ronkonkoma, New York 11779
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 717
<SECURITIES> 0
<RECEIVABLES> 29,022
<ALLOWANCES> 1,166
<INVENTORY> 3,272
<CURRENT-ASSETS> 18,043
<PP&E> 14,338
<DEPRECIATION> 4,724
<TOTAL-ASSETS> 46,798
<CURRENT-LIABILITIES> 9,681
<BONDS> 11,666
0
0
<COMMON> 143
<OTHER-SE> 26,226
<TOTAL-LIABILITY-AND-EQUITY> 46,798
<SALES> 6,939
<TOTAL-REVENUES> 10,014
<CGS> 1,894
<TOTAL-COSTS> 9,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 331
<INCOME-PRETAX> 166
<INCOME-TAX> 0
<INCOME-CONTINUING> 166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
<FN>
Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are reported at -0-
herein. * Notes and accounts receivable - trade are reported net of allowances
for doubtful account in the Statement of Financial Position.
</FN>
</TABLE>
