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Filed pursuant to Rule 424(b)(1)
Registration Statement
File No. 333-81371
PROSPECTUS
535,605 Shares of
Common Stock
STERLING VISION, INC.
Our common stock, par value $.01 per share (the "Common Stock") is
listed on the Nasdaq National Market System ("NASDAQ-NMS") under the symbol,
"ISEE". On June 21, 1999, the closing price for the shares of our Common Stock
as reported by the NASDAQ-NMS was $3.94 per share.
The selling shareholders may sell all or a portion of the shares of
Common Stock offered hereby (collectively, the "Shares") in private
transactions or in the over-the-counter market at prices related to the
prevailing prices of the Common Stock on the NASDAQ-NMS at the time of sale.
The selling shareholders may effect such transactions by selling to or through
one or more broker-dealers, and such broker-dealers may receive compensation
in the form of underwriting discounts, concessions, or commissions from the
selling shareholders. The selling shareholders and any broker-dealers that
participate in the distribution may, under certain circumstances, be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by such broker-dealers
and any profits realized on their resale of Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. In
conjunction with the selling shareholders, we may agree to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act. In addition, we have agreed to indemnify the selling
shareholders, with respect to the registration of the Shares, against certain
liabilities, including certain liabilities under the Securities Act. To the
extent required, the specified number of Shares to be sold, the names of the
selling shareholders, the public offering price, the names of any such
broker-dealers, and any applicable commissions or discounts with respect to
any particular offer will be set forth in a supplement to this Prospectus.
Each of the selling shareholders reserves the right to accept or reject, in
whole or in part, any proposed purchase of the Shares . See "Plan of
Distribution." Any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than pursuant to this Prospectus.
Please see "Risk Factors" beginning on page 6 to read about certain
factors you should consider before buying.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities, or
determined if this Prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is July 8, 1999
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and
other information with the Securities and Exchange Commission ("SEC"). You may
read or copy any document we file at the Public Reference Room maintained by
the SEC at 450 Fifth Street, NW, Judiciary Plaza, Room 1024, Washington, DC
20549, and at the following Regional Offices of the Commission: Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048; and Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information regarding its public reference rooms. Our SEC filings are
also available to the public from the SEC's web site at http://www.sec.gov.
Our Common Stock is listed on the Nasdaq National Market System. Information
concerning us is available from NASDAQ's web site at http://www.nasdaq.com.
If you are a stockholder, you may request a copy of these filings, at
no cost, by writing or telephoning us at the following address:
Sterling Visions, Inc.
1500 Hempstead Turnpike
East Meadow, New York 11554
Attention: William Young, Executive Vice President - Finance
Phone No.: (516) 390-2100
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
have filed with it, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this Prospectus. This Prospectus is part
of Registration Statement which we filed with the SEC. We incorporate by
reference the documents listed below.
A. Our Annual Report on Form 10-K/A for the year ended December 31,
1998, dated May 28, 1999;
B. Our Form 10-Q for the quarter ended March 31, 1999, dated May 24,
1999;
C. Our Form 10-Q/A for the quarter ended June 30, 1998, dated May 14,
1999;
D. Our Form 10-Q/A for the quarter ended September 30, 1998, dated
May 14, 1999;
E. Our Form 10-Q/A for the quarter ended March 31, 1998, dated May
14, 1999;
F. Our Annual Report on Form 10-K for the year ended December 31,
1998, dated April 16, 1999;
G. Our Form 8-K, dated March 4, 1999;
H. Our Form 8-K, dated January 14, 1999; and
I. All other reports and other documents filed by us pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") since December 31, 1998.
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Any financial statements and schedules hereafter incorporated in this
Prospectus that have been audited and are the subject of a report by
independent accountants will be incorporated in reliance on such reports and
on the authority of such firm as experts in accounting and auditing to the
extent covered by consents filed with the SEC.
ADDITIONAL INFORMATION
You should rely only on the information provided in this document or
other information that we have referred you to. We have not authorized anyone
to provide you with information that is different. This Prospectus does not
constitute an offer or solicitation by anyone in any jurisdiction in which an
offer or solicitation would be unlawful.
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. We believe that the forward looking statements contained in this
Prospectus are within the meaning of the safe harbor provisions afforded by
section 27A of the Securities Act. Forward-looking statements contained in
this Prospectus and the other documents incorporated herein by reference,
involve known and unknown risks, uncertainties, and other factors which could
cause our actual results, financial or operating performance, or achievements
to differ from the future results, financial or operating performance, or
achievements expressed or implied by such forward looking statements.
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PROSPECTUS SUMMARY
Because this is a summary of the terms of the registrable securities,
it does not contain all the information that may be important to you. This
Prospectus contains forward-looking statements. You should read the following
summary, and the "Risk Factors" section, along with the more detailed
information and the Financial Statements and the notes to the Financial
Statements appearing elsewhere in this Prospectus or incorporated by reference
in this Prospectus, before you decide whether to participate in this offering.
ABOUT STERLING VISION, INC.
Our Business
We, along with our franchisees, develop and operate retail optical
stores (collectively, "Sterling Stores") principally under one of the trade
names "Sterling Optical," "IPCO Optical," "Site for Sore Eyes," "Benson
Optical," "Southern Optical," "Superior Optical," "Nevada Optical," "Duling
Optical," "Monfried Optical," "Kindy Optical," and "Singer Specs." We are
presently formulating plans to change the trade name of most Sterling Stores
(other than our Site for Sore Eyes stores located in Northern California) to
"Sterling Optical." We also operate Vision Care of California, a specialized
health care maintenance organization licensed by the California Department of
Corporations. Vision Care of California employs licensed optometrists who
render services in offices located immediately adjacent to, or within, most
Sterling Stores located in California.
Based upon domestic sales and number of locations of Company-owned
and franchised stores, we are one of the largest chains of retail optical
stores and the second largest chain of franchised optical stores in the United
States. As of December 31, 1998, there were 292 Sterling Stores in operation,
of which 41 were Company-owned stores (including six stores managed by
franchisees) and 251 were franchised stores (including twelve stores which we
manage on behalf of franchisees). We continually seek to expand both our
Company-owned and franchised store operations. As of December 31, 1998, we
were constructing two additional Company-owned stores and an additional four
franchised stores, and we had received commitments from existing franchisees
to develop an additional seventeen franchised stores. Currently, we are
located in 26 states, the District of Columbia, Ontario, Canada, and the U.S.
Virgin Islands.
Most Sterling Stores offer eyecare products and services such as
prescription and non-prescription eyeglasses, eyeglass frames, ophthalmic
lenses, contact lenses, sunglasses, and a broad range of related items. To the
extent permitted by individual state regulations, most Sterling Stores employ
or affiliate with an optometrist to provide professional eye examinations to
the public and fill the prescriptions written by these employed or affiliated
optometrists, as well as from unaffiliated optometrists and ophthalmologists.
In addition, most Sterling Stores are able to offer same-day service because
most stores have an inventory of ophthalmic and contact lenses, as well as
on-site lab equipment for cutting and edging ophthalmic lenses to fit into
eyeglass frames.
We view our Company-owned stores as "inventory" to be strategically
sold to qualified franchisees and aim to achieve two goals by selling
Company-owned stores to franchisees:
o to recognize a gain on the conveyance of the assets of such
stores; and
o to create a stream of royalty payments based upon a percentage
of the gross revenues of the franchised locations.
Currently, our revenues are derived from a few main areas:
o the sale of eyecare products and services at our Company-owned
stores;
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o on-going royalties based upon a percentage of the gross revenues
of franchised stores; and
o the conveyance of Company-owned store assets to existing and new
franchisees.
In addition to our retail optical business, Insight Laser Centers,
Inc. ("Insight"), which is a wholly-owned subsidiary of ours, owns and
operates an eyecare center, located in New York City, at which it has
installed an excimer laser and at which it offers a procedure known as
Photo-Refractive Keractectomy. PRK, as it is known in the medical arena, is a
procedure performed by licensed ophthalmologists for the correction of certain
degrees of myopia (near-sightedness), hyperopia (far-sightedness) and
astigmatisms. We have also entered into arrangements with other
ophthalmologists who perform the PRK procedure utilizing excimer lasers
installed in their offices by Insight, in exchange for their payment, to
Insight, of a fee for each PRK procedure performed with such lasers. As of
December 31, 1998, Insight had leased six (6) excimer lasers, each with a
purchase option for nominal consideration, and had deposits for the purchase
of two additional excimer lasers, which deposits were subsequently applied to
our costs in upgrading certain of our lasers. As of the date hereof, Insight
had placed one such laser in its Trump Tower facility and an additional four
of such excimer lasers in ophthalmological offices located in New York,
Pennsylvania, Delaware, and New Jersey.
On May 6, 1998, through another one of our wholly owned subsidiaries,
Insight Laser Centers N.Y. I, Inc., we purchased substantially all of the
assets of an ambulatory surgery center located in Garden City, New York. As
part of that transaction, we settled our legal action against the estate of
the former owner of such center, entered into a long term lease of the
premises in which such center is located, and entered into an agreement
pursuant to which we will manage the operations of the center for the estate
of such former owner until the license for the center is transferred to an
affiliate of ours. We currently manage the operations of this facility, which
is a full-service ambulatory surgery center that contains these surgical
operating rooms.
Our History
We were organized under the laws of the State of New York in January
1992. Our executive offices are located at 1500 Hempstead Turnpike, East
Meadow, New York 11554, our telephone number is (516) 390-2100, and our fax
number is (516) 390-2150.
In July 1992, we purchased substantially all of the assets of
Sterling Optical Corp., formerly known as IPCO Corporation, a New York
corporation then a debtor-in-possession under Chapter 11 of the U.S.
Bankruptcy Code. Subsequent to this acquisition, in October 1993, we acquired,
through a merger with one of our wholly-owned subsidiaries, 26 retail optical
stores (both company operated and franchised) operating under the name "Site
For Sore Eyes" and located in Northern California. In connection with this
merger, we also acquired Vision Care of California. In addition, we: (i) in
August 1994, purchased the assets of 8 additional retail optical stores
located in New York and New Jersey from Pembridge Optical Partners, Inc.; (ii)
in November 1995, acquired, through one of our wholly-owned subsidiaries,
substantially all of the retail optical assets of Benson Optical Co., Inc.,
OCA Acquisition Corp. and Superior Optical Company, Inc., including the assets
located in approximately 78 retail optical store locations, a substantial
number of which were subsequently closed by us; (iii) in May 1996, acquired,
through one of our wholly-owned subsidiaries, substantially all of the retail
optical assets of Vision Centers of America, Ltd., D&K Optical, Inc., Monfried
Corporation and Duling Finance Corporation, including the assets located in
approximately 13 company operated stores and franchise agreements, together
with related agreements, with respect to approximately 75 additional
franchised stores; and (iv) in April 1997, acquired, in exchange for shares of
our Common Stock, all of the issued and outstanding capital stock of Singer
Specs, Inc., a chain of approximately 30 franchised retail optical stores.
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RISK FACTORS
1. We do not control the management of all of the retail optical stores
that operate under our name.
We rely, in part, on our franchisees for business development. Since
we do not control the management of our franchised stores, we cannot assure
that any franchisee owner will have the business acumen or financial resources
to operate the franchise successfully. If a substantial number of franchises
are not successful, our financial condition and results of operations could be
affected adversely.
2. We compete with franchisors in other industries, as well as in our
industry, for the sale of franchises to prospective franchisees.
Many of these competitors may have greater technical resources
available to them and will be able to attract and retain better skilled
franchisee owners. If we cannot successfully sell our franchises to highly
skilled franchisee owners, our financial condition and results of operations
could be affected adversely.
3. We are highly dependent upon increasing the number of franchises.
Our revenues and profitability levels directly relate to the number
of retail optical stores operating under one or more of our tradenames.
Therefore, our growth and ability to increase our revenues depends on
increasing the number of franchised stores. We believe that there are many
major metropolitan and urban areas where Sterling Stores could be opened;
however, there can be no guarantee that we will be successful in developing
franchises in those areas or that we will maintain or increase the number of
franchises in the future. If we do not increase or maintain the number of
franchised Sterling Stores, our financial condition and results of operations
may be adversely affected.
4. We compete with many types of eyewear providers.
The retail optical business is highly competitive and includes chains
of retail optical stores, superstores, individual retail outlets, and a large
number of individual opticians, optometrists, and ophthalmologists who provide
professional services and, in connection therewith, dispense prescription
eyewear. We, as retailers of prescription eyewear, generally service local
markets, and thus our competition varies substantially from one location or
geographic area to another. We believe that the principal competitive factors
in our industry are convenience of location, the on-site availability of
professional eye examinations, quality and consistency of products and
services, price, product warranties, and a broad selection of merchandise. We
believe that we compete favorably in each of these respects; however, if
another retail optical provider improves its skills in these areas, we may not
be able to compete successfully.
5. We have depended upon acquiring non-Sterling retail optical stores
and chains to improve our profitability.
In the past, a substantial portion of our profits came from our
ability to acquire non-Sterling retail optical stores and chains, initially
operate them, and then strategically sell the assets of such stores to
franchisees who are thereupon granted a license to use one of our tradenames
in exchange for their payment, to us, of an initial franchise fee, as well as
ongoing royalties. Although we believe that many opportunities to acquire,
operate, and resell optical stores exist, we cannot guarantee that these
opportunities will continue to exist or that any potential acquisition we
consummate will be successful. Our potential inability to resell certain
non-Sterling retail optical stores or to consummate any potential acquisitions
could have a material adverse effect on our financial condition and results of
operations.
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6. We offer incentives to our customers and experience lower margins
because of it.
At times when our major competitors offer significant promotional
incentives to their customers, we are forced to do the same, including "50%
Off" on designer frames and "Buy One/ Get-One Free" promotional offers and, in
response thereto, we have, from time to time, offered the same or similar
incentives to our customers. This practice has resulted in lower margins, and
we cannot guarantee that these competitive promotional incentives will not
further adversely impact our results of operations. Although we believe that
our Sterling Stores provide quality service and products at competitive
prices, several of the large, retail optical chains have greater financial
resources. Therefore, we cannot guarantee that we will be able to continue to
deliver cost-efficient products in the event of aggressive pricing by our
competitors.
7. We rely on purchase money financing for a substantial portion of the
purchase price of our store assets that we have sold to franchisees.
Historically, a substantial portion of our net income was from
selling our store assets to franchisees. As we do not convey our store assets
on a regular basis, this practice may have a material adverse effect on our
financial condition and results of operations. Accordingly our earnings may
fluctuate significantly from fiscal period to fiscal period. Also, in
connection with our conveyance of such store assets to franchisees, we
generally finance the majority of the purchase price and thus recognize all of
the gain before we receive all of the proceeds from such conveyance. In the
past, when a franchisee defaulted on such purchase money obligations, we have,
in many instances, been able to repossess such store assets and then reconvey
them to another franchisee; however, we cannot guarantee that we will be able
to continue, or be successful, with this practice in the future.
8. We have experienced substantial losses from the operation of our
Insight Laser Center business.
An integral part of our business strategy of becoming a full-service
eyecare company originally included developing and/or managing a chain of
eyecare centers, to be operated under the tradename "Insight Laser." Insight
Laser Centers were intended to primarily offer Photo Refractive Keratectomy
services which are referred to in the industry as PRK.
Despite significant efforts, our revenues from the operation of our
Insight Laser Center business grew only modestly, as a result of the public's
resistance to accepting PRK as a vision correction alternative. For the year
ended December 31, 1998, we incurred a net loss of $1,100,000 and for the year
ended December 31, 1997, we incurred a net loss of $1,400,000, from operating
our Insight Laser Center business. Although we believe that such loss for the
year ending December 31, 1999 will be substantially reduced or eliminated, we
cannot guarantee that our Insight Laser Center business will generate profits
or that our financial condition and results of operations will not be
adversely affected as a result of the operation thereof.
9. We face substantial competition in the PRK industry.
Many companies are entering into fee agreements with ophthalmologists
under conditions similar to those we have entered into for certain of our
excimer lasers. Hospitals and other ophthamological offices have excimer
lasers which are able to perform the PRK procedure, and a manufacturer of one
such excimer laser has developed, and is operating, its own laser centers.
Because of this competition, the prices generally charged for the PRK
procedure have declined; and it is anticipated that further competition will
only lead to a further decline in the prices charged for PRK.
The PRK procedure also competes with other present forms of treatment
for refractive disorders, including eyeglasses, contact lenses, refractive
surgery known as radial keratotomy, corneal transplants, and other
technologies under development. Although we believe that we will be able to
compete successfully in the PRK
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industry, an increase in competition or acceptance of other methods to correct
refractive disorders could adversely affect our financial condition and
results of operations.
10. Our success in the PRK industry is dependent upon market acceptance.
Market acceptance of the PRK procedure is affected by many factors,
including:
o nonacceptance of the laser refractive procedure as an alternative
to existing methods of treating refractive disorders;
o the relatively high cost of laser refractive procedure;
o general resistance to surgery;
o the effectiveness of alternative, less intrusive, or less
expensive methods of correcting refractive disorders; and
o the possibility of known or unknown side effects.
Additionally, our lasers are currently approved only for the
correction of certain degrees of myopia, hyperopia and/or astigmatisms. We
cannot give any assurance that market acceptance of our PRK services will
increase by either the ophthalmological community or the general population;
and the failure to increase such acceptance could have a material adverse
effect on our business, financial condition and results of operations.
11. We run the risk of not being able to remain current with rapid
technological changes.
The market for ophthalmic lasers is characterized by rapid
technological changes, including advances in laser and other technologies and
the potential new development of alternative surgical techniques or new
pharmaceutical products. It is possible that newer technologies, techniques,
or products could be developed with better performance than the excimer lasers
that we have acquired. If new and better ophthalmic laser technologies or
other technologies that correct the same conditions as PRK are developed, the
acceptance of such technologies could have a material adverse effect on our
PRK business.
12. As PRK laser surgery gains market acceptance, we may lose revenue from
traditional eyewear customers.
If traditional eyewear users undergo the PRK procedure or other
vision correction techniques, the demand for contact lenses and eyeglasses may
decrease. As part of our business, we service and market contact lenses and
eyeglasses. A decrease in customer demand for such products could have a
material adverse effect on our, and also our franchised Sterling Stores',
financial condition and results of operations.
13. We have expanded our focus and acquired an interest in an ambulatory
surgery center.
On May 6, 1998, through our wholly owned subsidiary, Insight Laser
Centers N.Y. I., Inc., we purchased substantially all of the tangible assets
of an ambulatory surgery center located in Garden City, New York. As part of
this transaction, we agreed to manage the operations of this center, on behalf
of the estate of the former owner thereof, until the New York State Department
of Health approves of the transfer of the certificate of need therefor to one
of our affiliates, whereupon we will commence managing such operations for
such affiliate. We had no prior experience in managing or operating an
ambulatory surgery center and cannot give any assurance that our financial
condition and results of operations will not be adversely effected thereby.
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14. We are subject to a variety of state, local, and federal regulations
which affect the health care industry.
The regulatory requirements that we must satisfy to conduct our
business will vary from state to state. For example, some states have enacted
laws governing the ability of ophthalmologists and optometrists to enter into
contracts with business corporations or lay persons, and some states prohibit
companies from computing their royalty fees based upon a percentage of the
gross revenues generated by optometrists from exam fees. Various federal and
state regulations also limit the financial and non-financial terms of
agreements with health care providers, and therefore our potential revenues
may differ depending upon the nature of our various health care provider
affiliations.
Our excimer lasers are medical devices and are subject to regulation
by the U.S. Foods and Drug Administration ("FDA"). Summit Technologies and
VISX, the manufacturers of the two excimer laser systems that we currently
use, have received approval from the FDA for their use to treat certain
refractive disorders. However, such approval contains restrictions on the use,
labeling, promotion, and advertising of the excimer laser. If the FDA and/or
other federal, state, or local governmental agencies change the rules and
regulations affecting the use of excimer lasers for PRK, our business and
results of operations could be adversely effected.
We are also subject to regulations regarding the operation, in
California, of VisionCare of California, as well as our franchise business and
in-store laboratory operations. As a franchisor, we are also subject to
various registrations and disclosure requirements imposed by the Federal Trade
Commission and by many of the states in which we conduct our franchising
operations. The Federal Occupational Safety and Health Act regulates our
in-store laboratory operations. Although we believe that we are in material
compliance with all such applicable laws and/or regulations, we cannot
guarantee that we will be able to sustain compliance if the laws and
regulations change.
15. We are legally prohibited from inducing our customers with financial
rewards in order to contract with us.
The Medicare and Medicaid anti-kickback statutes prohibit financial
relationships that aim to induce, arrange, or recommend the purchase of items
or services, or patient referrals to providers of services, for which payment
may be made under federally funded health care programs. The anti-kickback
statutes contain exceptions for, among other things, properly reported
discounts and compensation for bona fide employees. In addition, federal
regulations establish certain "safe harbors" from liability under the
anti-kickback statutes, including further refinements of the exceptions for
discounts and employee compensation, and a safe harbor for personal service
contracts. Several states also have statutes or regulations prohibiting
financial relationships with referral sources that are not limited to services
for which Medicare and Medicaid payment may be made. If we are sanctioned
under these federal or state anti-remuneration laws, we may be subjected to
civil monetary penalties, license suspension or revocation, exclusion of
providers or practitioners from participation in Medicare and Medicaid, and
criminal fines or imprisonment. While we believe we are presently in
compliance with these laws, we cannot guarantee that some of our business
practices would not be subject to challenge under any of these laws.
Currently, we are not aware of any challenge or potential challenge to our
business practices.
16. Potential conflicts of interest may arise as certain of our principal
shareholders and directors are involved with other companies in the
optical industry.
Dr. Alan Cohen is the President and Chief Executive Officer of the
Company, and Drs. Robert Cohen and Edward Cohen are directors and, together
with certain members of their respective immediate families, are our principal
shareholders. Drs. Alan and Robert Cohen are also the executive officers and
directors and, together with certain members of their and Dr. Edward Cohen's
respective immediate families, are the sole shareholders of Cohen Fashion
Optical, Inc. and its affiliate, Real Optical Purchasing Corp. These
corporations operate and franchise retail optical stores that are similar to
Sterling Stores. Cohen Fashion Optical and Real Optical operate
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and/or have franchised stores in the states of Connecticut, Florida, New
Hampshire, Massachusetts, New Jersey, New York and Pennsylvania and may, in
the future, operate and/or conduct franchising activities in other states as
well. As of June 1, 1999, many Cohen Fashion Optical stores were located in
the same shopping center or mall as, or in close proximity to, Sterling
Stores. We cannot state that, in the future, Cohen Fashion Optical will not
open or franchise additional stores which are located in the same areas as
Sterling Stores.
Moreover, certain members of the Cohen family own minority equity
interests in, and have substantial management positions or consulting
agreements with two of our suppliers, Rapid Cast, Inc. and Dura-Lens, Inc.
Currently we receive products from Rapid Cast and DuraLab on a preferred
vendor basis, however we cannot guarantee that we will continue to receive
products from these companies on such favorable terms. Furthermore, Sterling
Stores and certain of Cohen Fashion Optical stores are joint providers under
certain of our third party benefit plans and we anticipate that such
arrangement will continue in the future. Because of the interests that the
Cohen family has in certain of our suppliers and also in other companies in
the optical industry, we cannot state that conflicts of interest will not
arise that may cause the Cohen family shareholders to enter into business
relationships that are not favorable to us.
17. A large portion of our stock is held by members of the Cohen family.
Exclusive of the shares of Common Stock held by certain members of
Dr. Edward Cohen's immediate family and the outstanding options to purchase
750,001 shares of Common Stock, as of June 1, 1999, approximately 44% of our
issued and outstanding shares of Common Stock were held by Drs. Robert, Alan
and Edward Cohen and certain members of their respective immediate families.
Therefore, the Cohen family is able to direct our affairs and exercise
significant influence over all matters requiring shareholder approval,
including the election of directors and the approval of significant corporate
transactions. Future sales, by the Cohen family, of substantial amounts of
Common Stock, or the potential for such sales, could adversely affect the
prevailing market price of our Common Stock.
18. We significantly depend on the ability and experience of certain
members of our management.
We rely on the skills of certain members of our management team to
guide our operations. A loss of any of the individuals listed below could have
an adverse effect on our operations:
o Dr. Robert Cohen, Chairman of the Board
o Dr. Alan Cohen, Chief Executive Officer, President and Director
o Mr. Jerry Darnell, Chief Operating Officer - Franchise Division
o Mr. Joseph Silver, Executive Vice President and General Counsel
o Mr. William Young, Chief Financial Officer
Furthermore, other than as to Mr. Young, we do not have employment
agreements with these individuals and cannot ensure that, in the future, they
will continue to work for us.
19. The prevailing market price of our Common Stock may be adversely
effected by sales of a substantial number of shares into the public
market.
As of June 1, 1999, in addition to the 535,605 Shares of Common Stock
being registered hereby, there were 15,118,524 shares of Common Stock
outstanding, excluding the 3,500,000 shares that were reserved for issuance
under the Company's 1995 Stock Option Plan. Of the outstanding shares, we
issued 10,106,879 shares in
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private transactions not involving a public offering and of these shares,
5,556,243 are freely tradeable under Rule 144 of the Securities Act and
4,550,636 are subject to the volume limitations on sale as set forth in Rule
144.
20. We have created provisions in our governing documents that will make
it difficult for our business to be acquired or our directors to be
removed.
Our Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws contain certain provisions that are intended to discourage,
delay, or make it more difficult for a change of control of our business to
occur. There are also provisions designed to prevent the removal, by our
shareholders, of directors who serve on our classified Board of Directors,
even if some, or a majority, of them voted for the removal of a director.
Currently, we may issue 5,000,000 shares of Preferred Stock, par value $.01
per share, which includes the 35 shares of Senior Convertible Preferred Stock
that we issued on February 17, 1998. Our Board of Directors has the authority
to fix the rights, privileges and preferences of such shares of Preferred
Stock without any further vote or action by the shareholders. Therefore, the
rights of the holders of Common Stock are and may, in the future, be subject
to, and may be adversely affected by, the rights of the holders of the Senior
Convertible Preferred Stock, as well as the holders of any additional
Preferred Stock that may be issued in the future. In addition, we are subject
to the anti-takeover provisions of Section 912 of the Business Corporation Law
of the State of New York, which could have the effect of delaying or
preventing a change of control of our business.
21. We are have not complied with all the terms of our loan agreement.
On June 30, 1997, we entered into a loan agreement with STI Credit
Corporation that established a credit facility to finance a portion of our
then existing and future franchise promissory notes receivable. As of each of
December 31, 1997 and 1998, we were not in compliance with certain financial
covenants of the loan agreement; however, STI Credit Corporation waived its
right to act upon our non-compliance. If we are unable to comply with the loan
agreement in the future, we cannot guarantee that we will be able to obtain
appropriate waivers of, or amendments to, the loan agreement, and the failure
to do so could have a material adverse effect on our business and financial
conditions.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the Shares
of Common Stock being offered hereby. All proceeds from the sale of such
Shares will be for the account of the selling shareholders. See "Selling
Shareholders and Plan of Distribution." We may, however, receive an aggregate
of $2,800,000 if the holders of the Senior Convertible Preferred Stock
exercise their right to purchase 700,000 shares of our Common Stock pursuant
to the warrants issued in connection with the sale of the Senior Convertible
Preferred Stock. We intend to use all of the proceeds we may receive, as a
result of such exercise, for general working capital purposes.
SELLING SHAREHOLDERS
The selling shareholders under this Prospectus are Huberfeld/Bodner
Family Foundation, Huberfeld/Bodner Partnership, Ace Foundation, Inc., Rita
Folger, Congregation Ahavas Tsedoka V'Chesed, Thomas DePetrillo and Marchon
Eyewear, Inc.
The table below sets forth certain information with respect to the
ownership before and after this offering, as of June 1, 1999, the number of
Shares covered by this Prospectus with respect to each selling shareholder,
and the amount and percentage ownership of each selling shareholder after the
offering of the Shares offered hereby, assuming all of the Shares covered by
this Prospectus are sold by the selling shareholders. Except as otherwise
indicated by the footnotes below, none of the selling shareholders has had any
position, office, or other material relationship with us within the past three
years, other than as a result of the ownership of the Shares or other
securities of ours.
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<TABLE>
<CAPTION>
Number of
Shares
Name of Beneficial Owner Common Stock Beneficially Registered Common Stock Beneficially
Owned Prior to the Offering Hereunder Owned After the Offering(5)
- ---------------------------------------- ----------------------------------------------- -------------------------------
Number Percent Number Percent
---------------- ---------- ---------- -------------- --------------
<S> <C> <C>
Huberfeld/Bodner Family Foundation 508,333(1)(2) 3.3% 133,333 375,000 2.4%
Huberfeld/Bodner Partnership 480,000(1) 3.1% 120,000 360,000 2.3%
Ace Foundation, Inc. 583,333(1)(2) 3.7% 133,333 450,000 2.9%
Rita Folger 70,333(1)(2) * 13,333 15,000 *
Congregation Ahavas Tsedoka V'Chesed 235,000(1) * 25,000 0 *
Thomas L. DePetrillo 180,000(3) 1.2% 50,000 0 *
Marchon Eyewear, Inc.(4) 65,606 * 60,606 5,000 *
</TABLE>
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* Less than one percent.
(1) This number represents the aggregate number of shares of Common Stock to
be issued to such person (a) upon the conversion of our Senior
Convertible Preferred Stock held by such selling shareholder at the
conversion price of $3.00 per share, and (b) upon the exercise of the
Warrants held by such selling shareholder.
(2) Includes Warrants that were issued in connection with a prior private
placement of our securities and are immediately exercisable.
(3) Includes 30,000 shares of Common Stock and an option to purchase 100,000
shares of Common Stock at an exercise price of $6.00 per share.
(4) Marchon Eyewear, Inc. is one of the Company's suppliers for eyeglass
frames and related business transactions.
(5) It is unknown if, when, or in what amounts the selling shareholders may
offer Shares pursuant to this Prospectus. Because the selling
shareholders may offer all or some of the Shares covered hereby, no
estimate can be given as to the amount of Shares offered hereby that the
selling shareholders will continue to hold after this offering is
declared effective and thereafter considered complete. However, for
purposes of this table, we have assumed that, after completion of this
offering, the selling shareholders will have sold all of the Shares
covered hereby and all other previously registered shares.
PLAN OF DISTRIBUTION
In February 1998, we entered into Convertible Debentures and Warrants
Subscription Agreements with Huberfeld/Bodner Family Foundation,
Huberfeld/Bodner Partnership, Ace Foundation, Inc., Rita Folger and
Congregation Ahavas Tsedoka V'Chesed in connection with our private placement
of units consisting of an aggregate of $3,500,000 principal amount of
convertible debentures (collectively, the "Debentures") and an aggregate of
700,000 warrants (collectively, the "Warrants"), which Warrants entitled the
holders thereof to purchase up to 700,000 shares of our Common Stock at a
price of $5.00 per share.
Subsequent to the date of our issuance and sale of the Debentures and
Warrants, we and the selling shareholders determined that the issuance and
sale of the Debentures and Warrants should be rescinded based upon a certain
mutual mistake. Accordingly, on April 14, 1998, we and the selling
shareholders entered into an Exchange Agreement, effective as of February 17,
1998, whereby the Debentures were rescinded and declared null and void from
inception and were exchanged for $3,500,000 stated value (approximately
$4,025,000 fair value) of
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<PAGE>
a series of our Preferred Stock, par value $.01 per share (the "Preferred
Stock"), and the Warrants were exchanged for new warrants (the "New
Warrants"), entitling the selling shareholders to purchase up to 700,000
shares of Common Stock at a price of $5.00 per share until February 17, 2001.
The Preferred Stock originally required us to pay quarterly dividends
(in cash or Common Stock) calculated at the rate of 10% per annum, commencing
May 17, 1998. Additionally we were required to redeem, either in cash or
Common Stock, all of the Preferred Stock, at 105% of the then outstanding
stated value, based on a conversion price of $5.00, from and after February
17, 1999. After February 18, 1999, we, however, were required to pay dividends
at the rate of 24% per annum. Finally, there was a price-protection guarantee
provision, whereby under certain circumstances, we would be required to pay
the holders the difference between the $5.00 conversion price and the selling
price (net of commissions) of any such shares sold.
On January 14, 1999, we and the selling shareholders entered into an
Amendment Agreement to reduce the conversion price, from $5.00 to $4.00, of
all shares of Preferred Stock converted on or prior to February 10, 1999, and
to eliminate the price protection guaranty provision contained in the
Agreement with respect to any such shares so converted prior to such date.
On March 4, 1999, effective as of February 11, 1999, we and each of
the four remaining holders of the Preferred Stock entered into a further
amendment to the original agreement to reduce the conversion price of all
outstanding shares of Preferred Stock, from $5.00 to $3.00, to extend the date
by which we are required to redeem all outstanding Preferred Stock, from
February 17, 1999 to February 17, 2000, to eliminate the requirement that we
pay dividends on the Preferred Stock from and after February 17, 1999, and to
reduce the exercise price of the outstanding New Warrants from $5.00 to $4.00.
We are required to register the Shares being registered hereby as a result of
the decreases in such conversion price of the Preferred Stock and exercise
price of the New Warrants as explained above.
Mr. DePetrillo acquired his Shares of Common Stock in a private
transaction from certain of our shareholders. Marchon Eyewear, Inc., which is
a supplier of eyeglass frames to the Company, was owed approximately $340,000
by us and has agreed to accept 250,000 Shares of Common Stock to satisfy
$250,000 of such indebtedness. In connection with such transaction, we agreed
to register the Shares.
The sale of all or a portion of the Shares by the selling
shareholders may be effected, from time to time, in private transactions or
over-the-counter market transactions at prices related to the prevailing
prices of the shares on the NASDAQ-NMS at the time of sale, or at negotiated
prices. The selling shareholders may effect such transactions by selling to or
through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions, or
commissions from the selling shareholders. The selling shareholders and any
broker-dealers that participate in the distribution of the Shares may, under
certain circumstances, be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by such broker-dealers and
any profits realized on their resale of Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. We may agree
with the selling shareholders to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition, we
have agreed to indemnify certain of the selling shareholders, with respect to
the Shares of Common Stock being offered hereby, against certain liabilities,
including certain liabilities under the Securities Act.
To the extent required under the Securities Act, a supplemental
prospectus will be filed, disclosing (a) the name of any such broker-dealers,
(b) the number of Shares involved, (c) the price at which such Shares are to
be sold, (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) whether or not such broker-dealers
conducted any investigation to verify the information set out or incorporated
by reference in this Prospectus, as supplemented, and (f) other facts material
to the transaction.
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<PAGE>
Each selling shareholder may be subject to applicable provisions of
the Exchange Act, and the rules and regulations promulgated thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of purchases and sales of any of our securities by the selling
shareholders.
There is no assurance that any of the selling shareholders will sell
any of the Shares.
We have agreed to pay all costs and expenses incurred in connection
with the registration of the Shares offered hereby, except that the selling
shareholders shall be responsible for all selling commissions, transfer taxes,
and related charges in connection with the offer and sale of such Shares and
the fees of the selling shareholders' counsel.
We have agreed to keep the Registration Statement, to which this
Prospectus forms a part, relating to the offering and sale, by the selling
shareholders, of the Shares, continuously effective until the earlier of (i)
February 17, 2001; and (ii) the date that all of the Shares have been sold and
the New Warrants have been exercised.
DESCRIPTION OF OUR CAPITAL STOCK
The following general summary of our capital stock is qualified in
its entirety by reference to our Amended and Restated Certificate of
Incorporation, a copy of which is on file with the SEC. See "Where You Can
Find More Information" for a description of the documents incorporated by
reference in this Prospectus.
General
We are authorized to issue 28,000,000 shares of Common Stock, $.01
par value, and 5,000,000 shares of Preferred Stock, $.01 par value. As of June
1, 1999, we had 15,118,524 shares of Common Stock issued and outstanding and
29 issued and outstanding shares of Senior Convertible Preferred Stock.
Our Common Stock
As holders of shares of our Common Stock, you are entitled to
dividends when and as declared by the Board of Directors from legally
available funds therefore and, upon liquidation, you are entitled to share pro
rata in any stockholder distribution. However, we have no intention to pay
dividends on shares of our Common Stock in the foreseeable future as our Board
of Directors has decided to retain earnings to finance our operations and
expansion. You have one non-cumulative vote for each share held. There are no
pre-emptive or subscription rights to purchase our securities. We have
reserved the Shares being registered hereby for issuance upon conversion of
the Senior Convertible Preferred Stock and upon exercise of the New Warrants.
Preferred Stock
We have designated 35 shares of our Preferred Stock as Senior
Convertible Preferred Stock, of which 29 shares were issued and outstanding as
of June 1, 1999. The holders of the Senior Convertible Preferred Stock were
entitled to receive quarterly dividends at a rate of 10% per annum from May
17, 1998 up until February 17, 1999. The Senior Convertible Preferred Stock is
redeemable, at our option, at 105% of its stated value. The holders of the
Senior Convertible Preferred Stock vote as a single class with the Common
Stock on an as-converted basis on all matters on which the holders of the
Common Stock are entitled to vote. Each outstanding share of Senior
Convertible Preferred Stock may be converted into Common Stock at the
conversion price of $3.00 per share.
Until the Senior Convertible Preferred Stock is redeemed or has been
converted into Common Stock, we cannot consolidate, merge or transfer all or
substantially all of our assets to any person unless the terms of such
consolidation, merger, or transfer include the preservation of the Senior
Convertible Preferred Stock. There is a liquidation preference of $100,000 per
share of Senior Convertible Preferred Stock.
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<PAGE>
Warrants
As of June 1, 1999, we had outstanding warrants (including the New
Warrants) exercisable for an aggregate of 1,228,000 shares of Common Stock at
an estimated weighted average exercise price of $4.83 per share.
Transfer Agent
The transfer agent for the Common Stock is Chase Mellon Shareholder
Services.
LEGAL MATTERS
Our counsel, Camhy Karlinsky & Stein LLP, New York, New York, has
passed on the legality of the Shares to which this Prospectus relates.
EXPERTS
Arthur Andersen LLP, independent public accountants, have audited our
consolidated financial statements for the year ended December 31, 1998.
Deloitte & Touche LLP, independent public accountants, have audited our
consolidated financial statements for each of the years ended December 31,
1997 and December 31, 1996 and for each of the three years in the period ended
December 31, 1997 incorporated by reference to our Annual Report on Form 10-K
for the Year Ended December 31, 1997. The financial statements incorporated by
reference in this Prospectus and elsewhere in the Registration Statement, to
the extent and for the periods indicated in their reports, have been audited
by Arthur Anderson LLP and Deloitte & Touche LLP, independent public
accountants, and are included herein in reliance upon the authority of said
firms as experts in accounting and auditing.
CHANGES IN, AND DISAGREEMENT WITH, CERTIFYING ACCOUNTANTS
On or about April 15, 1998, our Executive and Audit Committees
considered the reappointment of Deloitte & Touche LLP as our principal
accountants. These Committees determined that it was in our best interest to
select another firm of independent public accountants as our auditors for the
1998 fiscal year. In response to such determination, certain members of our
management team commenced their selection process by interviewing a number of
other firms of certified public accounts.
On April 24, 1998, the Audit Committee recommended to the Board of
Directors that it select Arthur Andersen LLP as such auditors. The Board of
Directors accepted this recommendation. Also on April 24, 1998, Deloitte &
Touche LLP notified us, in writing, of its decision to resign as our auditors,
effective immediately.
Deloitte & Touche's reports for the years ended December 31, 1996 and
1997 did not contain an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope, or accounting
principles.
For the year ended December 31, 1997, our management disagreed with
Deloitte & Touche LLP on the treatment, for financial accounting purposes, of
our Convertible Debentures due August 25, 1998, which was ultimately resolved
to Deloitte's satisfaction; and Deloitte & Touche advised management of a
reportable condition regarding inventory controls. We are addressing this
issue through the installation, in the Sterling Stores we operate, of a
point-of-sale computer system. In addition, Deloitte & Touche LLP previously
advised us that it was in disagreement with our proposed 1998 accounting
treatment of our Senior Convertible Preferred Stock.
Our Board of Directors and Audit Committee did not discuss these
disagreements with Deloitte & Touche LLP. We have authorized Deloitte & Touche
LLP to respond fully to the inquiries of Arthur Andersen LLP concerning each
of these disagreements.
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<PAGE>
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Amended and Restated Certificate of Incorporation provides that a
director shall not be liable to us or our shareholders for damages for any
breach of duty in such capacity as a director except for liability in the
event that
o a judgment or other final adjudication adverse to such
director establishes that his/her acts or omissions were in
bad faith or involved intentional misconduct or a knowing
violation of law or that such director personally gained a
financial profit or other advantage to which he/she was not
legally entitled; or
o that such director's acts violated Section 719 of the Business
Corporation Law of the State of New York.
Our Amended and Restated Bylaws provides for our indemnification of
directors and officers, to the fullest extent permitted by applicable law, for
all costs reasonably incurred in connection with any action, suit, or
proceeding in which such director or officer is made a party by virtue of his
or her being an officer or director of our Company, if such director or
officer acted in good faith, for a purpose which he/she reasonably believed to
be in the best interests of our Company, and in criminal actions or
proceedings, in addition, had no reasonable cause to believe that his/her
conduct was unlawful. We have not entered into indemnification agreements with
any of our directors.
Insofar as indemnification for liabilities arising under the
Securities Act may be available to directors, officers and controlling persons
of our Company pursuant to the foregoing provisions, or otherwise, we have
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.
No dealer, salesperson, or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in our affairs since the
date hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making the offer is not qualified to do so,
or to anyone to whom it is unlawful to make such offer or solicitation.
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<PAGE>
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You may rely only on the information contained in this Prospectus. We have not
authorized anyone to provide information different from that contained in this
Prospectus. Neither the delivery of this Prospectus nor the sale of Common
Stock means that information contained in this Prospectus is correct after the
date of this Prospectus. This Prospectus is not an offer to sell or a
solicitation of an offer to buy these shares of Common Stock in any
circumstances under which the offer or solicitation is unlawful.
---------------
TABLE OF CONTENTS
Page
Where You Can Find More
Information................... 2
Incorporation of Certain Documents
by Reference.................. 2
Additional Information............. 3
Prospectus Summary................. 4
Risk Factors....................... 6
Use of Proceeds.................... 11
Selling Shareholders............... 11
Plan of Distribution............... 12
Description of Our Capital Stock... 14
Legal Matters...................... 15
Experts............................ 15
Changes In, and Disagreement With,
Certifying Accountants........ 15
Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities.... 16
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535,605 Shares
Sterling Vision, Inc.
Common Stock
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Prospectus
---------------
July 8, 1999
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