<PAGE>
============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K
CURRENT REPORT,
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): February 14, 2000
STERLING VISION, INC.
(Exact Name of Registrant as Specified in Charter)
New York 1-14128 11-3096941
- ---------------------- ----------------------- ----------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
1500 Hempstead Turnpike
East Meadow, New York 11554
---------------------------
(Address of Principal Executive Offices)
(516) 390-2100
--------------
(Registrant's telephone number, including area code)
============================================
<PAGE>
Item 5. Other Events
A. Private Placement of Securities
Since early February 2000, the Company has been conducting a private
placement of certain of its securities to accredited investors, with the
proceeds therefrom principally intended to be used to finance development of the
Company's new web-based, optical portal business. (See B. below for further
information concerning this new business). The securities which the Company is
offering in the private placement are units, with each unit consisting of one
(1) share of the Company's new Series B Convertible Preferred Stock, par value
$.01 per share ("Series B Preferred Stock"), and a warrant to purchase one-half
(1/2) of one share of the Series B Preferred Stock at an exercise price per
one-half share of $7.5875 (the "Exercise Price"). Each share of Series B
Preferred Stock included in the units is convertible into two shares of the
Company's Common Stock (subject to adjustment in the event of stock splits or
similar transactions prior to the date of conversion), and each warrant, upon
conversion of the Series B Preferred Stock, will automatically become
exercisable for one whole share of Common Stock at the Exercise Price. The
warrants will be exercisable commencing on August 14, 2000 and will expire on
February 13, 2005. The Series B Preferred Stock issued pursuant to the private
placement is automatically convertible, by its terms, into shares of Common
Stock upon the filing by the Company, with the New York State Department of
State, of an amendment (the "Amendment") to its Amended and Restated Certificate
of Incorporation increasing its authorized number of shares of Common Stock to
50,000,000. The filing of the Amendment is expected to occur within two (2)
business days following a special meeting of shareholders currently scheduled to
be held on April 17, 2000, at which the Amendment will be voted on by the
Company's shareholders. The Company is offering a maximum of 1,665,000 units at
a price of $7.00 per unit. KSH Investment Group, Inc. and Mueller & Company,
Inc. are serving as placement agents in connection with the private placement.
From February 14, 2000 (the date on which the initial closing of the
private placement occurred) through February 29, 2000, the Company sold an
aggregate of approximately 1,529,000 units in the placement. The offering is
scheduled to terminate on March 31, 2000, unless extended by agreement of the
Company and the placement agents. If the maximum number of units offered in the
private placement are sold, the Company estimates that the net proceeds from the
offering will be approximately $10,500,000.
Pursuant to the placement agent agreement, the Company has also agreed to
issue to the placement agents warrants ("Placement Agent Warrants") to purchase,
at the Exercise Price, an aggregate of 500,000 shares of Common Stock. The
Placement Agent Warrants issued to the placement agents will be exercisable
commencing on August 14, 2000 and will expire on February 13, 2005.
2
<PAGE>
The Company has agreed with each purchaser of the units in the private
placement to file with the Securities and Exchange Commission ("SEC"), by no
later than the earlier of the 75th day after the date of the last closing of the
units or the 45th day after the date on which the Company files its Annual
Report on Form 10-K for the year ended December 31, 1999, a registration
statement for the purpose of registering the resale of the shares of Common
Stock issuable upon conversion of the shares of Series B Preferred Stock
included in the units sold in the offering and issuable upon exercise of the
warrants included in the units (or the Common Stock issuable upon conversion of
any Series B Preferred Stock issued upon exercise of any such warrants, if
exercised prior to the date of conversion of the Series B Preferred Stock). The
Company has also agreed to include in such registration statement the shares of
Common Stock subject to the Placement Agent Warrants. Notwithstanding the filing
of the registration statement, each purchaser of units has agreed not to sell or
otherwise dispose of any Common Stock issuable upon conversion of the Series B
Preferred Stock or exercise of the warrants included in the units until the
earliest of (i) the expiration of the six (6) month period following the date of
the Company's filing of the registration statement; (ii) the date on which the
composite closing price of the Common Stock, as reported on Nasdaq-NMS (or the
principal, registered national securities exchange on which the Common Stock may
then be trading; hereinafter, an "Alternate Exchange") is $12.00 or greater for
a period of ten (10) consecutive trading days; or (iii) the date on which the
Common Stock is no longer traded on the Nasdaq-NMS or any Alternate Exchange.
If the Amendment is not approved by the shareholders and/or not filed with
the New York Department of State prior to August 1, 2000, dividends at the rate
of 12% per annum will accrue on all issued and outstanding shares of Series B
Preferred Stock from and after August 1, 2000, which dividends will be payable
quarterly in arrears commencing on November 1, 2000. In addition, each share of
Series B Preferred Stock has a liquidation preference of $7.00 (plus accrued and
unpaid dividends), which is payable on a pari passu basis with the liquidation
preference of the Company's currently issued and outstanding Senior Preferred
Stock. Until converted, holders of the Series B Preferred Stock are entitled to
vote, together as one class with the holders of the Common Stock and Senior
Preferred Stock, on all matters presented to holders of Common Stock for
approval, with each share having the number of votes equal to the number of
shares of Common Stock into which each such share is convertible.
3
<PAGE>
B. Internet Initiatives
The Company has begun the process of developing a web-based optical portal
business that will focus on business-to-business opportunities. As of the date
hereof, this business is still in the development stage, has not yet generated
any revenues and is subject to various risks and uncertainties. The following is
a discussion of the market opportunity and business model for this new business
and certain risk factors, which the Company believes may be applicable to this
new business.
MARKET OPPORTUNITY AND BUSINESS MODEL. Business-to-business, e-commerce
transactions are growing at a staggering pace. Forrester Research estimates
that, in the U.S. alone, business-to-business, e-commerce transactions will grow
from $109 billion in 1999 to $1.3 trillion in 2003, more than ten times the $108
billion estimate for business-to-consumer transactions in 2003. This trend is
also evident worldwide. In Europe alone, research has suggested that the
business-to-business market is anticipated to grow to $176 billion by 2003, up
from $7 billion in 1998, nearly 30 times the growth rate of the Gross Domestic
Product of many European countries.
As part of its new business strategy, the Company will seek to capitalize
on this robust growth potential by providing comprehensive, e-commerce solutions
for the buyers and suppliers of business goods and services in the optical
industry. This, the Company believes, will lower the overall costs of
business-to-business transactions by reducing the inefficiencies experienced by
both buyers and suppliers of eye care goods and services in traditional business
transactions. The Company believes that this market is not currently being
adequately served by Internet companies, which tend to focus on consumers and
not on the business-to-business market.
In implementing this new business initiative, the Company has developed a
strategic alliance and is presently working together with Rare Medium, Inc., the
web consulting services arm of Rare Medium Group, Inc., to develop and launch an
extensive network of state-of-the-art web sites designed to provide information,
interaction and electronic business to business commerce. Rare Medium, is one of
the country's leading providers of Internet solutions and e-commerce strategies
that improve business processes and develop branding strategies, marketing
communications and interactive content to large and medium sized companies in
the financial, automotive, consumer servicing, retail and consumer goods
industries. Its clients include Microsoft, Merrill Lynch, Epson and Hotel
Reservations Network, among other leading companies.
RISK FACTORS
1. INTERNET-BASED, BUSINESS-TO-BUSINESS COMMERCE IS A NEWLY EMERGING
MARKET. Internet based, business-to-business commerce is a newly emerging
market. Consequently, it is difficult to evaluate the Company's prospects for
its proposed web-based, optical portal business based on the performance of
4
<PAGE>
other companies operating within this market. In addition, the Company's
historical financial information is of limited value in projecting future
operating results for this new business due, in part, to the emerging nature of
the electronic commerce market.
2. THE COMPANY HAS ONLY RECENTLY BEGUN EFFORTS TO EXPAND ITS E-COMMERCE
CAPABILITIES, AND THESE EFFORTS WILL ENTAIL SIGNIFICANT RISKS AND REQUIRE
SUBSTANTIAL ADDITIONAL CAPITAL. The Company has only recently begun efforts to
expand its e-commerce capabilities. Development of these new capabilities
entails substantial risks and uncertainties including, but not limited to, the
Company's limited experience to date in conducting business on the Internet, the
Company's unproven ability to develop websites and other proprietary technology
and transaction processing systems needed to support such capabilities, and
uncertainty of market acceptance; and whether the Company will encounter
substantial delays and/or unexpected expenses related to such efforts. In
addition, the Company will require substantial additional capital in order to
implement this web-based strategy; and there can be no assurance that such
additional capital will become available and, even if available, that the terms
thereof will be acceptable to the Company.
3. THERE IS POTENTIAL FOR CONFLICT WITH EXISTING FRANCHISEES. The Company
has recently been contacted by a group of franchisees regarding the Company's
proposed e-commerce strategy and how such strategy may relate to the obligations
owed to such franchisees. Although the Company believes it has the right to
implement its new strategy, it will be discussing such issues with its
franchisees in the near future.
4. THE SUCCESS OF THE COMPANY'S WEB-BASED, OPTICAL PORTAL BUSINESS WILL
DEPEND ON EXPANDING MARKET ACCEPTANCE FOR INTERNET BUSINESS-TO-BUSINESS
ELECTRONIC COMMERCE. The Company's success in implementing its new, web-based,
optical portal business will depend upon the widespread acceptance and use of
the Internet as an effective medium for business-to-business electronic
commerce, particularly as a medium to perform goods procurement and fulfillment
functions in the optical markets. If the use of the Internet in electronic
commerce in such markets does not grow, or if it grows more slowly than
expected, the Company's Internet-based business may suffer.
5. SECURITY RISKS ASSOCIATED WITH ELECTRONIC COMMERCE MAY LIMIT ACCEPTANCE
OF THE COMPANY'S WEB-BASED, OPTICAL PORTAL BUSINESS. A fundamental requirement
to conduct Internet-based, business-to-business electronic commerce is the
secure transmission of confidential information over public networks. Failure to
prevent security breaches of the Company's web-based, optical portal business,
or well publicized security breaches affecting the Internet in general, could
significantly harm this business and, as a result, the Company's operating
results and financial condition. There can be no certainty that advances in
computer capabilities, new discoveries in the field of cryptography, or other
developments will not result in an ability to compromise or breach the systems
5
<PAGE>
which the Company will use to protect content and transactions from unauthorized
access. If these security measures are breached, a person could misappropriate
propriety or confidential information or cause interruptions in operations.
There are significant cost requirements to protect against security breaches or
to alleviate problems caused by breaches. Further, a well publicized compromise
of security could deter potential customers from using the Internet to conduct
financial transactions or to transmit confidential information.
6. ADDITIONAL GOVERNMENTAL REGULATIONS MAY INCREASE THE COMPANY'S COSTS OF
DOING BUSINESS. The laws governing Internet transactions remain largely
unsettled. The adoption or modification of laws or regulations relating to the
Internet could harm the operating results and financial condition of the
Company's web-based, optical portal business by increasing its costs and
administrative burdens. It may take years to determine whether and how existing
laws, such as those governing intellectual property, privacy, libel, consumer
protection and taxation, apply to the Internet. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. The growth and development of electronic commerce may prompt calls
for more stringent consumer protection laws, as well as new laws governing the
taxation of Internet-based commerce. The Company must comply with new
regulations in the United States, as well as any regulations adopted by other
countries where we may do business. Compliance with any newly adopted laws may
prove difficult for the Company and may harm the Company's business, operating
results and financial condition.
7. FAILURE TO EXPAND THE INTERNET INFRASTRUCTURE COULD LIMIT FUTURE
GROWTH. The recent growth in Internet traffic has caused periods of decreased
performance. If Internet usage continues to grow rapidly, its infrastructure may
not be able to support these demands and its performance and reliability may
decline. If outages or delays on the Internet occur frequently, overall Internet
usage, including usage of the Company's web sites, could grow more slowly or
decline. The Company's ability to increase the speed and scope of its services
to its customers is ultimately limited by, and depends upon the speed and
reliability of, both the Internet and the customers' internal networks.
Consequently, the emergence and growth of the market for the Company's web-based
services will depend upon improvements being made to the entire Internet, as
well as to the individual customers' networking infrastructures, to alleviate
overloading and congestion. If these improvements are not made, the ability of
customers to utilize the Company's Internet-based services will be hindered, and
the Company's business, operating results and financial condition may be
materially adversely affected.
8. THE INTERNET-BASED, BUSINESS-TO-BUSINESS INDUSTRY IS HIGHLY COMPETITIVE
AND HAS LOW BARRIERS TO ENTRY. The market for Internet-based,
business-to-business electronic commerce is extremely competitive. Competition
in this area is expected to intensify as current competitors expand their
service offerings and new competitors, including larger, more established
6
<PAGE>
companies with more resources enter, the market. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors, or that competitive pressures will not harm the Company's business,
operating results or financial condition. Because there are relatively low
barriers to entry in the electronic commerce market, competition from other
established and emerging companies may develop in the future. Increased
competition is likely to result in lower average transaction prices, reduced
margins and a decrease or loss of market share, any of which could harm the
Company's business, operating results or financial condition. In addition,
competitors may be able to develop services that are superior to, or that
achieve greater acceptance than, the services to be offered by the Company as
part of its web-based, optical portal business.
9. THE COMPANY MUST HAVE THE ABILITY TO QUICKLY ADAPT OUR WEB-BASED,
OPTICAL PORTAL BUSINESS TO TECHNOLOGICAL CHANGES AND CUSTOMER PREFERENCES. The
Internet and electronic commerce industries are characterized by: (i) rapid
technological change; (ii) changes in user and customer requirements and
preferences; (iii) frequent introductions of new products and services embodying
new technologies; and (iv) the emergence of new industry standards and
practices. If the Company does not respond to these developments quickly and
efficiently, it will not be competitive within the industry. If it fails to
determine accurately the features which its customers require, enhance its then
existing services or develop new services, the Company may lose potential
customers. If the Company does not respond to the rapid technological changes in
this industry, its web-based services could become obsolete and its business
would be severely harmed.
7
<PAGE>
SIGNATURE
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 hereunto duly authorized.
STERLING VISION, INC.
By: /s/Joseph Silver
----------------------------------
Name: Joseph Silver
Title: Executive Vice President
& General Counsel
Date: March 7, 2000
8
